Look at the 2016 reports of the Italian car manufacturer Fiat, which uses IFRS:
Fiat capitalizes development costs as required in IFRS.
Look into the income results for 2016 in page 56. What was the research and development expense in the income statement for 2016?
What are the components of the research and development expense (see page 58)? (include both the descriptions and the numbers).
How much development expenditures did the company capitalize in 2016 (can also be found in page 58)?
In US GAAP development cost cannot be capitalized (except for special cases discussed in class like software, etc.). Taking that into account, use the information you found in parts a, b, and c to see what would have been the research and development expense under US GAAP. (hint: development cost cannot be capitalized in US GAAP, and so they would also not require any future amortization or write-down).
Compare the research and development expense in IFRS (from part a) and in US GAAP (which you found on part d) and calculate the difference. Would Fiat’s profit go up or down in 2016 if it used US GAAP? Look up Fiat’s annual profit before tax for 2016 (look at the line that says “Profit Before Taxes”). What is the profit before tax for the year? Would the change in profit be significant (calculate the percentage change)?
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