QUESTION 2: GRANADOS
1. Compute the differential impact capitalization versus expensing would have on net income for each year of the period

2. In which year, if any, will the total annual amount of amortization of past R&D will be at least equal to the R&D expense incurred during that year

In year 4, the total expense incurred is 100.00 and that is equal to the total annual amortization of R&D that has been capitalized until year 3.

3. What would you suggest to the managers of the company, with regard to possible modifications in their accounting policies? (For purposes of this question, ignore the revenue creation potential of R&D to emphasize the mechanical aspects of the procedure of R&D capitalization. In doing so, we implicitly acknowledge that Granados considers capitalization of R&D for the sole purpose of managing short-term earnings).

The first suggestion to the company would be that they complete all the criteria required to capitalize the operation. In general, what they have to prove in a reliable way is that in terms of technical aspects, the intangible asset will be used or sold. Also they need to prove the intention to finish the project, use it or sell it. Likewise, they have to indicate how this asset will generate future economic benefits (a market to the intangible asset or the result obtain of it.). Furthermore, they have to be able to measure reliably the expenditure attributable to the intangible asset during its development.
After the analysis of the impact of the capitalization (and amortization) of R&D against the recognition of this as an expense there are two point to highlight. First, when the company capitalize the R&D amount there will be an effect in the balance sheet, therefore the assets will increase. However, when it is recognize as an expense it only affect the