Discussion on Accounting Treatment of R&D Equipment Leases
This paper raises questions about the accounting treatment of R&D equipment leases: R&D expenditures are typically expensed, but does leasing R&D equipment still require lease recognition and classification under FAS 13? The article outlines relevant considerations.
We are considering leasing research and development (R&D) equipment.
A key question is: if the leased equipment is used for R&D purposes, and R&D expenditures are typically expensed as incurred, should we still account for it under the lease standard (FAS 13)? Specifically, do we first need to determine whether the arrangement constitutes a lease based on the criteria in FAS 13, and then classify it as a capital lease or an operating lease?
This question involves two levels of accounting judgment: first, whether the scope of the lease standard is exempted due to the asset's use (R&D); second, if applicable, whether the lease classification tests (such as transfer of ownership, bargain purchase option, lease term covering a major part of the economic life, and the present value of minimum lease payments relative to fair value) should be performed as usual. Since the expensing of R&D costs and lease capitalization may create an intersection in accounting treatment, careful consideration is needed in practice.
Currently, we have not obtained clear guidance from authoritative bodies on such situations, so the above issues remain to be further explored. It is recommended to conduct a comprehensive assessment based on the specific lease terms, the nature of the R&D project, and the company's accounting policies.