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PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT When one company purchases another, it absorbs the acquired firm’s assets and liabilities onto its balance sheet. One part of the acquired company that belongs to neither area is in-process r ....

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... of a firm because reporting of earnings can be considerably influenced by the amount of purchase price allocated to an in-process R&D write-off. Effects on Future Periods Current and future results can be affected significantly by the allocation of the purchase cost of a business. When the acquired company is involved in research and development for products not yet developed, generally accepted accounting principles (GAAP) allow the acquirer to allocate a portion of the purchase price to IPR&D. If IPR&D were an asset, it would have to be subtracted little by little from future earnings. Amounts paid in the business combination a ...