Presented below are recent data and accounting policy notes for the goodwill of two international drug companies.

Question:

Presented below are recent data and accounting policy notes for the goodwill of two international drug companies. Bayer (DEU) prepares its statements in accordance with International Financial Reporting Standards (IFRS). Merck (USA) prepares its in accordance with U.S. .

Related Information Research and development expense Amortization expense Bayer (€ millions) Merck ($ millions) 2,107

Both U.S. GAAP and IFRS do not allow amortization of goodwill.
Instructions
a. Compute the return on equity for each of these companies, and use this analysis to briefly discuss the relative profitability of the two companies.
b. IFRS requires that development costs must be capitalized if technical and commercial feasibility (economic viability) of the resulting product has been established. Assume that Bayer recorded ‚¬1 million of development costs in the year reported above. Discuss briefly how this accounting affects your ability to compare the financial results of Bayer and Merck.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...