In the footnotes to the IFRS-based 2008 financial statements of European Aeronautical Defense and Space Company (EADS), parent company for Airbus, research and development (R&D) expenses were reported at 2,699 million euros. Also included in the footnotes is a chart describing the activity during 2008 in an intangible asset account called “capitalized development costs,” which shows the following (in million euros):

Beginning balance.......957

Increases...........31

Amortization........(107)

Ending balance........881

REQUIRED:

a. Explain the nature of the account called “capitalized development costs,” and how EADS is accounting for R&D.

b. How would this account be treated if EADS followed U.S. GAAP?

c. Estimate the amount of R&D expense EADS would have recognized during 2008 if it had followed U.S. GAAP.

d. Estimate the overall effect on 2008 net income of using IFRS vs. U.S. GAAP to account for R&D costs.