Research and Development Costs: Expense or Capitalize?

Question 1 

I agree that companies should be allowed to capitalize the cost of internally developed intangibles. This is because many companies miss out on various benefits that may accrue as a result of capitalizing on the internally acquired intangibles. Despite the arguments of how to derive the cost of internally developed intangibles, it is evident that their value can be determined. This is a factor that has been used as a reason to oppose the capitalization of internally developed intangibles. I support the inclusion of internal intangibles because I believe they are significant in evaluating the accuracy of the balance sheet. Companies should, therefore, be allowed to capitalize on internally developed intangibles to realize some of the benefits they have been missing. This will include the ability to evaluate future benefits and in return, strengthen the balance sheet. 

Question 2 

My position is superior because the capitalization of internally identified intangibles is beneficial to respective companies. One of the advantages stemming from this inclusion is the increase in the company's value. Companies that incorporate the benefits of capitalization are likely to increase their overall values. According to Lowrie (2019), the inclusion of various asset expenditures may act as future benefits to the company. Capitalization of internally developed intangibles also provides an opportunity for the company to identify its accurate results from ratio analysis. This is an aspect that is influenced by the equity turnover of the company as a result of capitalization. According to Merritt (2019), lack of reliability in determining future benefits is a significant setback in employing capitalization of internally developed intangibles. This is because the future cannot be predicted, making it difficult to project potential benefits. Thus, the option to utilize capitalization may rely on the decision of the host organization. 

Harley Davidson, would you invest in them?

Lowrie, L. (2019). Advantages of capitalization in accounting. Azcentral . https://yourbusiness.azcentral.com/advantages-capitalization-accounting-28257.html   

Merritt, Cam. (2019, January 28). Why Are R&D Expenses Not Capitalized? Small Business - Chron.com . Retrieved from http://smallbusiness.chron.com/rd-expenses-not-capitalized-43690.html.