35400 guaranteed future services such as software

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guaranteed future services such as software upgrades and long-term service contracts. Each quar- ter, the unearned revenue account increases by the new sales and decreases as revenue is earn 5-13 Module 5 I Revenue Recognition and Operating Income L02 Describe and analyze accounting for operating expenses, including research and development, and restructuring. Research and Development (R&D) Expenses R&D activities are a major expenditure for many companies, especially for those in technology pharmaceutical industries. Pfizer's R&D costs, for example, make up 14%of revenues ($9,413 IIlIt lionl$67 ,809million). These expenses include employment costs forR&D personnel,R&D materi and supplies, R&D related contract services, and R&D fixed-asset costs. 17% 16% 15% 14% 13% 12% 11% 10% 1/ ( ( ( ( ( ( Accounting for R&D Accounting for R&D is straightforward: R&D costs are expensed as incurred. The key issue - how to classify the expenses for financial reporting purposes. Salaries paid to researchers, and depreciation and other expenses related to general-purpose research facilities, are accounted for- the usual manner (which is to expense salaries when paid and to capitalize and depreciate gener•.• - purpose research facilities). However, these expenses are totaled separately and are classified R&D in the income statement rather than as SG&A. An exception to this general rule relate the purchase of R&D assets that are only used for a specific project and then retired when project is complete. These project-specific assets are expensed when purchased. Consequen _ income is reduced in the year of acquisition (but higher in subsequent years) relative to what company would have reported had the asset been capitalized and depreciated. (Project-spec' assets are said to have no "alternate use." One alternate use could be reselling the asset. In case, the asset is not considered project-specific and is accounted for like other long-term asse IFRS INSIGHT Research and Development Expenses and IFRS IFRS accounts for research costs and development costs separately. Research costs are alwars expensed. Development costs must be capitalized if all of the following conditions are affirmed: Technical feasibility of completing the intangible asset. Intention to complete the intangible asset. Ability to use or sell the intangible asset. Intangible asset will generate future economic benefits (the company must demonstrate the existence of a market or, if for internal use, the usefulness of the intangible asset). Availability of adequate resources to complete development. Ability to measure reliably the expenditure attributable to the intangible asset during its development. U.S. GAAP allows for capitalization of costs related to the development of software for sale to thL parties once the software achieves "commercial feasibility," but is silent on the capitalization other intangible assets-thus, implicitly prescribing expensing of these assets.
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Module 5 I Revenue Recognition and Operating Income 5-14
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