Under IFRS firms can capitalize development outlays, while research costs must be expensed as incurred. Development expenses of Skoda Auto in Czech kronas in 2017 was 7.0 million, in 2016 -3.5 million, in 2015 4.1 million, in 2014 5.4 million. Skoda Auto started to capitalize its development expenses in 2014. Assume that development assets are purchased evenly throughout the year and have estimated life of three years. If a financial analyst decides to capitalize development expenses of Skoda Auto,

a. What adjustments should be made to its balance sheet? What will be the book value of development intangible assets as of December 31, 2017?

b. what will be the effect of this adjustment on the firms profitability as measured by net margin, if companys tax rate is 35%?

c. What will be the effect of this adjustment on debt-to-equity ratio?