Capitalizing R&D Expenditures

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Capitalizing R&D Expenditures

Author Info

Diewert, Erwin
Huang, Ning

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Walter Erwin Diewert

Abstract

The next international version of the System of National Accounts will recommend that R&D (Research and Development) expenditures be capitalized instead of being immediately expensed as in the present System of National Accounts 1993. An R&D project creates a new technology, which in principle does not depreciate like a reproducible asset. A new technology is however subject to obsolescence, which acts in a manner that is somewhat similar to depreciation. The paper looks at the net benefits of an R&D project in the context of a very simple intertemporal general equilibrium model and suggests that R&D expenditures be amortized using the matching principle that has been developed in the accounting literature to match the fixed costs of a project to a stream of future benefits. Of particular interest is the evaluation of the net benefits of a publicly funded project where the results are made freely available to the public.

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Paper provided by UBC Department of Economics in its series UBC Departmental Archives with number diewert-08-01-18-09-24-04.

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Length: 29 pages
Date of creation: 18 Jan 2008
Date of revision: 18 Jan 2008
Handle: RePEc:ubc:bricol:diewert-08-01-18-09-24-04

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This paper has been announced in the following NEP Reports:

NEP-ACC-2008-01-26 (Accounting & Auditing)
NEP-ALL-2008-01-26 (All new papers)
NEP-INO-2008-01-26 (Innovation)
NEP-IPR-2008-01-26 (Intellectual Property Rights)
NEP-PPM-2008-01-26 (Project, Program & Portfolio Management)

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