Under IFRS firms can capitalize development outlays, whereas under US GAAP such outlays must be

expensed as incurred. In its 2008 IFRS-based financial statements, Philips Electronics recognized a developmentasset of E 845 million (E 767 million in 2012).The company's development expenditures and total R&D expenditures during the period 2006-2013 were as follows ( look attachment)

a Estimate the average expected life of Philips investments in development at the end of 2013.

b Using the estimate derived under a, what adjustments should an analyst make to the 2013 beginning balance

sheet and 2013 income statement to immediately expense all development outlays and derecognize

the development asset?

c What adjustments should be made to the 2013 beginning balance sheet and 2013 income statement to recognize

an asset for both research and development investments? Assume that the average expected life of

Philips investments in research at the end of 2012 and 2013 is equal to that of Philips development investments

at the end of 2013.

\f