Volume 2, Issue 3, August 2017, Page: 92-97
The Impact of Accounting Treatment of Research and Development Costs: Evidence from Chemring Group Plc
Murtala Zakari, Post Graduate School of Accounting and Finance, Leeds Beckett University, Leeds, UK
Sani Saidu, Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia (UUM), Kedah Darul Aman, Malaysia
Received: May 28, 2017;       Accepted: Jun. 23, 2017;       Published: Jul. 25, 2017
DOI: 10.11648/j.ijafrm.20170203.11      View  1583      Downloads  83
Abstract
This study seeks to examine the accounting treatments of Research and Development (R&D) costs and to assess the impact of the treatments on the statement of profit or loss, and financial position of Chemring Group Plc using secondary data for 2015 financial year. To achieve this, data were obtained from Chemring Group’s 2015 annual reports and accounts, and analyzed using content analysis such as tables, walk through accounting illustration and key financial ratios, this is the major contribution of this study demonstrating practically the impact of the treatments of R&D costs, which to the best knowledge of the researcher has not been analyzed before. Findings from the analysis show that expensing all R&D costs has reduced the value of non-current asset and equity at the same proportion to the tune of the initial capitalized amount of development costs. This has impacted the financial position and the balance sheet size negatively by £36.1m. Due to the decline in profit and the balance sheet size in terms of assets and equity, the efficiency ratios have indicated down ward trend while the long term solvency ratio indicates the company is more geared. The study concludes that expensing all R&D costs reduces net asset and equity thereby reducing the size of the balance sheet, and potential investors and other users of financial statement evaluating the company would note that the assets appearing on the balance sheet are incomplete because the huge amount spent to create future benefits are not recognized and reported in the statement of financial position of the company.
Keywords
R&D, Cost, Expenditure, IAS 38, Profit or Loss, Financial Position, Chemring Group
To cite this article
Murtala Zakari, Sani Saidu, The Impact of Accounting Treatment of Research and Development Costs: Evidence from Chemring Group Plc, International Journal of Accounting, Finance and Risk Management. Vol. 2, No. 3, 2017, pp. 92-97. doi: 10.11648/j.ijafrm.20170203.11
Copyright
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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