should the cost for market testing a new produdct be a cash outflow or part of the initial cost? why?

Answer 1

The cost for market testing should be a cash outflow (period expense) because while you may do multiple market tests, you may not launch a product based on any of them. This is the same principle in accounting that turns R&D expense into period expenses, instead of capitalizing and depreciating R&D costs over the life of the project.

The GAAP standards in this regard are designed to force companies to report results in a uniform way, and promote financial transparency. It also reduces he flexibility companies have in manipulating earnings by capitalizing costs and then recognizing them when it is financially advantageous.