Presenting R&D: A Convergence Model and an Algorithm.

Abstract In their recently published intermediate accounting text, Danos and Imhoff show how one can capitalize R&D expenditures and (after a period of convergence) still show the same R&D expense as occurs now under FASB Statement No. 2, which requires immediate expensing of R&D. This paper develops an analytical tool to present and analyze this capitalization scheme: a coordinate grid model. This coordinate model enables one to see relationships between expenditures and expenses visually. As an indication of the power of this visual representation of pattern, an algorithm is presented that was derived from the coordinate grid. The algorithm calculates the net asset value of R&D under the conditions of the capitalization model.