In-process R&D: To capitalize or expense?

Zhen Deng; Baruch Lev

doi:10.1016/j.jengtecman.2006.02.003

In-process R&D: To capitalize or expense?

Zhen Deng, Baruch Lev^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

19 Scopus citations

Abstract

The FASB recently proposed the capitalization of acquired in-process R&D costs to replace the current practice of expensing this item. This proposal will likely be strongly opposed by corporate executives. We examine whether in-process R&D is an asset worthy of capitalization or an expense, and, if it is an asset, how reliable is its estimate. We find a significant association between the values of in-process R&D and acquiring firms' cash flows during the 3 years subsequent to acquisition, thereby supporting the FASB's proposal to recognize in-process R&D as an asset. Preliminary tests are positive for the reliability/objectivity of in-process R&D estimates.

Original language	English
Pages (from-to)	18-32
Number of pages	15
Journal	Journal of Engineering and Technology Management - JET-M
Volume	23
Issue number	1-2 SPEC. ISS.
DOIs	https://doi.org/10.1016/j.jengtecman.2006.02.003
State	Published - 2006
Externally published	Yes

Keywords

Capitalization
Cashflows
Intangibles
R&D

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10.1016/j.jengtecman.2006.02.003

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title = "In-process R&D: To capitalize or expense?",

abstract = "The FASB recently proposed the capitalization of acquired in-process R&D costs to replace the current practice of expensing this item. This proposal will likely be strongly opposed by corporate executives. We examine whether in-process R&D is an asset worthy of capitalization or an expense, and, if it is an asset, how reliable is its estimate. We find a significant association between the values of in-process R&D and acquiring firms' cash flows during the 3 years subsequent to acquisition, thereby supporting the FASB's proposal to recognize in-process R&D as an asset. Preliminary tests are positive for the reliability/objectivity of in-process R&D estimates.",

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KW - Capitalization

KW - Cashflows

KW - Intangibles

KW - R&D

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In-process R&D: To capitalize or expense?

Abstract

Keywords

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