In Process Research and Development Charge
When one company acquires another, the purchase price must be allocated to the individual assets (net of liabilities) being purchased. Some are expensed immediately, while others are allocated to assets and may be expensed in later years (through depreciation or amortization). In the case of an acquired company’s in-process research and development projects, the amount is expensed in full immediately.
Since this type of expense is not expected to occur often, its amount is listed separately on the income statement and the acquiring company generally asks investors to ignore it (see Exhibit 2.9). However, an investor might want to consider what it would have cost the company to develop the products itself rather than buy them in process, and assign those costs to future years for comparative purposes.
For more information, see all articles on: Accounting, Adjusting Reported Financial Statements, Financial Statement Analysis, Fundamental Analysis See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
