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EITF ABSTRACTS Issue No. 99-5 Title: Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements Dates Discussed: May 19–20, 1999; July 22, 1999; September 23, 1999 References: FASB Statement No. 2, Accounting for Research and Development Costs FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets APB Opinion No. 20, Accounting Changes AICPA Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ISSUE 1. Manufacturers often incur pre-production costs related to products they will supply to their customers under long-term supply arrangements. For example, the manufacturer may incur costs to perform certain services related to the design and development of the products it will sell under long-term supply arrangements and may incur costs to design and develop molds, dies, and other tools that will be used in producing those products. While practice varies from industry to industry, the supplier may be contractually guaranteed reimbursement of design and development costs, implicitly guaranteed reimbursement of design and development costs through the pricing of the product or other means, or not guaranteed reimbursement of the design and development costs incurred under the long-term supply arrangement. 2. The issues are: Issue 1—How an entity should account for costs incurred to design and develop products that will be sold under a long-term supply arrangemen