Amortization Policy for Advertising and Research and Development Expenditures

Such potentially relevant items as advertising and research and development (R&D) are not reported on balance sheets because they do not meet the present-day recognition criteria used by the accounting profession. The present analysis considers the advertising and R&D expenditure treatment i...

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Published in:Journal of accounting research 1985-04, Vol.23 (1), p.326-335
Main Authors: Hirschey, Mark, Weygandt, Jerry J.
Format: Article
Language:English
Subjects:
Accounting policies
Advertising
Advertising expenditures
Advertising rates
Advertising research
Advertising to sales ratios
Amortization
Capitalization
Costs
Economic models
Economic value
Intangible assets
Market value
R&D
Research & development
Research & development expenditures
Research Reports
Statistical analysis
Studies
Tangible assets
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creator Hirschey, Mark
Weygandt, Jerry J.
description Such potentially relevant items as advertising and research and development (R&D) are not reported on balance sheets because they do not meet the present-day recognition criteria used by the accounting profession. The present analysis considers the advertising and R&D expenditure treatment issue from a market value perspective. The approach consists of determining whether advertising and R&D expenditures have a positive impact on the market value of the firm. An econometric model is developed for dealing with estimation problems. The model is estimated using ordinary least squares over a 390-firm sample taken from the 1977 Fortune 500 survey. The sample is representative of a broad spectrum of US industry. The results for the overall sample show a positive effect of advertising and R&D on the market value of the firm, thereby suggesting that these expenditures should be capitalized and then amortized rather than treated as an expense as incurred. The results also provide a basis for determining a relevant range for economic amortization rates.
doi_str_mv 10.2307/2490921
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1475-679X
language eng
recordid cdi_proquest_journals_206716287
source EBSCOhost Business Source Ultimate; International Bibliography of the Social Sciences (IBSS); JSTOR Archival Journals and Primary Sources Collection
subjects Accounting policies
Advertising
Advertising expenditures
Advertising rates
Advertising research
Advertising to sales ratios
Amortization
Capitalization
Costs
Economic models
Economic value
Intangible assets
Market value
R&D
Research & development
Research & development expenditures
Research Reports
Statistical analysis
Studies
Tangible assets
title Amortization Policy for Advertising and Research and Development Expenditures
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