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Technology Stocks : SSA (SSAX) BPCS/Client Server
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To: MAURICE J. SADOWSKY who wrote (731)3/26/1998 12:58:00 AM
From: James B. Barnes   of 915
 
Maurice,

The expensing of R&D vs. capitalizing it on the balance sheet is a question of matching costs to revenues in the proper periods. Hypothetically speaking, if a product has a life of say three years and all of the manufacturer's costs were in say year one, then good account principles say spread the costs of the product over the years that it's sold (it's life). The justification of this is that it's a fairer presentation (to owners, lenders, investors, etc.) of the entire situation, as opposed to showing a monster loss in the first year then big income in the second two years of the product's life. The later presentation would be more like a presentation on a cash basis, which is probably okay if it's properly explained to the reader as such.

If anyone else has an idea on this, be my guest.

Regards,

James
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