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Sfas No. 2 and Capitalization

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Submitted By brooks303
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SFAS No. 2 and Capitalization

SFAS No. 2 states that when thinking about capitalizing an item that will provide future economic resources many published studies have approached the question in terms of measurability. The statements says:

44. The criterion of measurability would require that a resource not be recognized as an asset for accounting purposes unless at the time it is acquired or developed its future economic benefits can be identified and objectively measured.

45. Paragraphs 39-40 indicate that at the time most research and development costs are incurred the future benefits are at best uncertain. In other words, there is no indication that an economic resource has been created. Moreover, even if at some point in the progress of an individual research and development project the expectation of future benefits becomes sufficiently high to indicate that an economic resource has been created, the question remains whether that resource should be recognized as an asset for financial accounting purposes. Although future benefits from a particular research and development project may be foreseen, they generally cannot be measured with a reasonable degree of certainty…Research and development costs therefore fail to satisfy the suggested measurability test for accounting recognition as an asset.

In other words, thinking about the capitalization of software development in regards to SFAS No. 2 and measurability, these costs should not be capitalized. However, I will say this in the defense of capitalizing, we can measure the value of a property at the time of purchase and currently we record these assets at historic cost. However, if there is a large drop in the market, a company will not recognize this change in the asset value on their balance sheet. It’s a stretch but there is an argument for saying that no asset can be measured with a reasonable…...

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