Research, patents and large investments on the balance sheet
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Companies that spend billions on research and hold hundreds of patents frequently do not show large investments on their balance sheet.
What would explain this? Would this affect your financial analysis of the company?
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Solution Summary
The solution discussed the accounting and tax treatment of research and development costs, and the effect on the balance sheet of companies engaging in research.
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You are correct that many millions and billions are spent on research in pursuit of new drugs. Most all of the research and development costs (R&D) are written off directly in the year they are incurred. Tax law allows a direct write-off, and the reason expensing R&D is appropriate is as follows: in conducting pure research, there is never any guarantee that the research will have any future value (which would be the criteria ...
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