USGAAP Requires Firms to Expense Immediately All Internal Expenditures for R&D

question 71

Essay

U.S.GAAP requires firms to expense immediately all internal expenditures for R&D costs.Alternatively,U.S.GAAP could require firms to capitalize and subsequently amortize all internal expenditures on R&D that have future potential.
Required:
Why have standard setters chosen not to allow the capitalization alternative? How would analysts be better served if U.S.GAAP required capitalization of R&D costs?

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Definitions:

Diminishing Marginal Utility

The decrease in satisfaction or usefulness obtained from each additional unit of consumption.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, due to the availability of more desirable substitutes.

Diminishing Marginal Utility

The principle that as a person consumes more of a good, the satisfaction gained from consuming an additional unit decreases.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than others can produce it. Relative costs determine comparative advantage.