Hi guys - got a quick question regarding accounting treatment of capital. R&D through the 3 FS:
If assuming: Total cap. R&D of $100m over 4 years ($25m year). Would my Y1 3FS look like this:
IS:
Cap. R&D $(25m)
Tax $10m / assuming 40% taxes
NI down by (15m)
CF:
NI: (15m)
CFI: (75)m -> deduct the remaining of the R&D cap as cash flow statement should be neutral?
change in cash: (90m)
BS:
Asset:
c&c (90m)
Cap R&D 75m
Total asset: (15m)
Liability / SE
NI: (15m)
Cheers!
bump
Are you expending 25m R&D per year or are you investing 100m in R&D and amortization of 4 years?
Sorry, been unclear. Lets assume: R&D total amount is $100m. I am capitalizing it into 4 years so cap R&D per year would be $25m.
Don't think how u laid it out is correct so assume 100m of cap R&D in Y0.
For Y0: no income statement effect since you are not expensing any amounts. On CF, 100m outflow of R&D. On BS, intangible assets up by 100m and cash down by 100.
For Y1: on income statement, 25m in amort so at 40% tax net income falls by 15. On CF, net income down by 15 but add back amort of 25 since non cash hence cash up by 10. On BS, cash up by 10, intangible asset down by 25 (due to amort) and retained earnings down by 15. So the BS also balances.
Basically if it’s easier to conceptualize this question is not at all different to the typical question of “effects of a $10 increase in depreciation”.
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