Question
Expenditures on purchase of buildings are accounted as assets but the expenditure on research and development is accounted as an expense. What is the rationale
Expenditures on purchase of buildings are accounted as assets but the expenditure on research and development is accounted as an expense. What is the rationale behind these different treatments?
a) Buildings are tangible but research is intangible.
b) Everyone understands that buildings are assets and research and development is an expense. It is common sense.
c) Accounting for buildings as assets based on historical cost and depreciating them limits the discretion available to managers. However, accounting for research the same way provides too much discretion to the managers. This could make the profit number unreliable.
d) Buildings can be used for a long time but research and development cannot be used for a long time.
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