Question: If Merck a pharmaceutical firm makes expenditures to research new
If Merck, a pharmaceutical firm, makes expenditures to research new drugs, it must treat the expenditures as an expense. If it acquires a patent for a new drug from its creator, it must treat the expenditure as an asset. If it acquires another firm with in-process R&D, it must treat the portion of the purchased price allocated to the in-process R&D as an asset. Explain U.S. GAAP’s rationale for the different treatment of these expenditures.
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