Question

2. Please briefly discuss the following:

a. How accounting responds uncertainty

b. Why SFAS No. 2 requires expensing research and development costs.

Answer 1

2.

(a) Accounting responds by providing for uncertain expenses in the income statement whereas no revenue is to be recognized to the extent such revenue is uncertain.

(b): SFAS no. 2 requires expending research and development cost till the time recognition criteria for recognition of intangible assets are met. Thus, only after it is certain that the research and development has resulted in an intangible assets from which economic benefits will flow to the organization in the future, the whole amount spend on research and development shall be expended.