Research On The Capitalization Of R&D Expenditure Of IC Designing Enterprise

The State Council announced on July 24th,2014 in "The National Integrated Circuit Industry Development Promotion Outline" that the integrated circuit(hereinafter referrcd to as "IC")industry is the core of the information technology industry,and is the strategic,fundamental and leading industry which supports economic and social development and national security.Due to the late start of China's IC industry and the technical blockade from foreign countries,the IC has become the most imported commodity in China,far exceeding the conventional commodity imports such as oil.In order to realize the import substitution,product upgrading and keeping up with the market development,these domestic IC enterprises have invested a huge amount of R&D expenditure each year.IC design industry is the sub-industry of IC industry.According to industry association statistics,more than 90 percent companies in IC design industry are small and medium-sized enterprises.Due to the characteristics of the IC design industry,majority of small and medium-sized enterprises have to expense but not capitalize their huge amount of R&D expenditure,which might make these companies' financial indicators worse.This expense trceatment might cause some potential financing opportunities loss,and even make some companies also hard to enjoy some existing tax or associate preferential policies,ultimately,affect these companies' going concern ability significantly.It is very important for IC design enterprises,especially for small and medium-sized IC design companies,to realize reasonable and standard R&D expenditure capitalization processing.This paper selected the A-share market listed Infotm Co.,Ltd as an example,Firstly,taking a detailed analysis of the characteristics of the IC design enterprises R&D activities,the accounting treatments of main IC R&D countries such as the USA etc.and the reasonability of conditional capitalization of IC design R&D expenditure,analyzing the present treatment situation of domestic IC design enterprise,the expense impacts and R&D capitalization dilemma.And then through the analysis of the Infotm successful capitalization case,proposed four suggestions to promote normal capitalization of IC design enterprises R&D expenditure.Firstly,it must be demonstrated that the characteristics of company's business is eligible for capitalization.Secondly,the time point of R&D expenditure capitalization project needs to be defined and distinguished.Thirdly,the problem of uncertain product life and uncertain future cash flow need to be solved through the good R&D project management.Fourthly,by strengthening corporate governance,doing the fundamental work of capitalizing the project itself and the accounting work of capitalization project,the legitimacy of the capitalization of R&D expenditure is ensured.These Suggestions provide a reference to other IC design companies,especially for small and medium-sized enterprises to realize the compliant,reasonable and effective capitalization accounting treatment of R&D expenditure.Main innovation of this article may be embodied in that a comprehensive analysis of the dilemma of IC industry R&D expenditure capitalization was taken which based on IC industry characteristics of R&D activities and general accounting treatments.And the successful experience of IC enterprise R&D expenditure capitalization was discussed with the specific data of the case enterprise.The research conclusion will have direct reference value for the normal capitalization of R&D expenditure of IC design enterprises.