The portion of R&D spend that is capitalized is usually only a small part of R&D. However, most companies benefit from R&D spending in the form of acquired know-how. This acquired know-how is a valuable asset that produces cash flow in the future. Analysts and investors should want the value of R&D spending in the balance sheet. So R&D should be treated like another investment and the R&D spending capitalized like other assets such as an investment in a building. But how do you capitalize R&D expenses? What are the steps involved in capitalizing R&D expenses?
This article discusses the steps involved in capitalizing R&D expenses.