| dc.description.abstract | The immediate expensing of the research and development cost mandates
by FASB creates some consequences with the current circumstances,
concern to reliability, objectivity, and value relevance. With high growing
of the information and technologies and also new industries, R&D became
importance and has significant value especially for the company with high
technology and knowledge such as software companies. This leads some
change in accounting practice, especially for Software Company
accounting, in accordance with Financial Accounting Standards Board
Statement No. 86 (SFAS 86). Software capitalization, the only exception in
the U.S. to the full expensing rule of R&D (SFAS 2), pertains to the
development of component R&D. This statement leads some major effect
on the financial statement of the company.
The purpose of this study is to explore the effect of capitalizing R&D cost
in the financial statement of the software company. To reach this purpose
this study began with the nature of R&D cost which explains the reasons
of R&D cost prefer to be capitalized than expensing. After that the
empirical study was deriving. First is by finding the relation between R&D
expenditure and subsequent earning for a large cross section of R&D
intensive firm. Second, by computing R&D and its amortization rate.
third, by adjusting reported earning and book value ofMicrosoft for R&D
capitalization. The fourth or last step is by showing the adjusted value in
the financial statement to determine the effects which come from R&D
capitalization.
From the research result, the effect of capitalizing R&D on Microsoft
financial statement increase company earning for 11 percent. The effect on
book value and profitability ratios are the same as the effect on earning
which have positive relationship. The book value (ROE) of the company
after capitalizing R&D cost are from 16% to 22%, profit margin are
increase from 27% to 34% and earning per share increase from $1,380 to
$1,460. | en_US |
