They can be capitalized and amortorized. The IRS provides this flexibility to allow R&D companies to carry forward their expenses to when they are actually making income. Post saying they must be taken in year spent are WRONG. Here is the IRS Pub 535 text (from the horse's mouth):
"You can elect to amortize your research and experimental costs, deduct them as current business
expenses, or write them off over a 10year period (see Optional write-off method below).
If you elect to amortize these costs, deduct them in equal amounts over 60 months or more.
The amortization period begins the month you first receive an economic benefit from the costs."
Mannkind will be made whole for their prior R&D costs (and probably other business start up costs directly related to Afrezza, which can also be amortorized according to the same IRS publication).
Thanks for you inputs! I am not an accountant. Seems like there is flexibility to do either way. All in how it is set up.
It seems crazy to say that you got to eat the cost. It would be like doing a large and lengthy project, carry materials & time costs and then be told you can't recoup the cost because you already paid for them. Just because we told you so.
@peter, For businesses, GAAP and FASB set the criteria. I understand R&D has to be expensed or else it has to show back in book as intangible asset and R&D spend is hard to articulate in value as asset. tech giants are lobbying FASB for years to modify the standards but to date I believe they can't. I will study IRS pub...There is an exception however and I just posted in earlier post for IN process R&D. idea is when one company acquires another company, implicitly they pay the goodwill price of pipeline and R&D and hence the acquiring company can put that as an asset in their books.....Either way, MNKD books will be dramatically better very soon
Under U.S. generally accepted accounting principles rules, SFAS 2, Accounting for Research and Development Costs, companies must charge R&D as an expense in the year incurred. Companies also must disclose total R&D costs in their financial statements. SFAS 2 recognizes the research component of R&D as "planned research or criminal investigation aimed at discovery of new knowledge" that may result in a new or improved product, service, process or technique. The operative word is "may," as a company never knows if its research efforts will bear fruit. The development aspect of R&D is the conceptual formulation, design and testing. Companies expense materials, equipment and facilities used in R&D activities as incurred including depreciation of the tangible portions of R&D