FineTech Ltd. is a manufacturing company that produces electronic gadgets. During the last financial year, the company invested heavily in research and development (R&D) to enhance product innovation and competitive advantage. As a result, FineTech incurred significant R&D expenses in the process. The company is now preparing its financial statements and needs to decide whether to treat these R&D expenses as operating expenses or capitalize them as intangible assets. Explain the concept of research and development costs in accounting, the criteria for capitalization, and the implications of each accounting treatment on FineTech's financial statements and financial performance. Additionally, discuss how these accounting decisions may impact investors, creditors, and other stakeholders in their assessment of FineTech's financial position and profitability.
Question:
FineTech Ltd. is a manufacturing company that produces electronic gadgets. During the last financial year, the company invested heavily in research and development (R&D) to enhance product innovation and competitive advantage. As a result, FineTech incurred significant R&D expenses in the process. The company is now preparing its financial statements and needs to decide whether to treat these R&D expenses as operating expenses or capitalize them as intangible assets. Explain the concept of research and development costs in accounting, the criteria for capitalization, and the implications of each accounting treatment on FineTech's financial statements and financial performance. Additionally, discuss how these accounting decisions may impact investors, creditors, and other stakeholders in their assessment of FineTech's financial position and profitability.
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