Question

A pharmaceutical company spends €4,000, €3,000, and €5,000 on research in 2013, 2014, and 2015, respectively. Assume that research investments have an expected life of two years and occur evenly throughout the year. If an analyst decides to capitalize all research expenditures and uses the straight-line method to amortize research assets, what will be her estimate of the book value of the pharmaceutical’s research asset at the end of 2015? If the company’s ta rate is 40%, what will be the effect of this change on company’s net income?

Answer 1

Please find the attachment. Kindly upvote if satisfied. If there are any queries please comment. I have made an assumption that the capitalization has started from the beginning of each year. That is why I have taken full year amortization for the year.