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Technology Stocks : Sterling Commerce (SE) -- Ignore unavailable to you. Want to Upgrade?

To: Benny Baga who wrote (244)	3/5/1999 4:20:00 PM
From: Turs	Read Replies (1) \| Respond to of 341

Not that it's the pressing issue at the moment, but I wanted to comment on capitalization of R&D. Accounting rules require you to capitalize R&D once a product in development has reached the point of technological feasibility. The problem is that this is open to interpretation. Most companies that the approach of "we're just not sure if this thing will work yet." Thus, they expense R&D right up until the moment the thing is actually finished and ready to go commercial. SE takes a more realistic approach, saying "it looks pretty promising at this point." Then they start capitalizing, spreading the recognition of the remaining development costs over the next few years. Ironically, in the end, it really doesn't matter becuase whatever expenses they push out into future years just get replaced by previous expenditures which have been pushed out from the past into the current year. Now, excluding the fact that your R&D budget is growing as your revenues and company grows, it's a wash. But nonetheless, that's how it works and investors always seem to prefer recognizing more expenses up front rather than less. Turs