Final answer:
Exceptions to expensing R&D costs that should be capitalized include technologically feasible software development costs, R&D purchased in a business acquisition, and potentially R&D performed for sale to others, if it meets specific criteria.The correct answer is option 1,2 and 4.
Step-by-step explanation:
The question relates to the accounting treatment of research and development (R&D) costs and asks which items should be capitalized instead of being expensed. Generally, R&D costs are expensed as incurred. However, there are specific circumstances where R&D costs should be capitalized. Among the options provided, the exceptions to the expensing rule that would require capitalization are:
- Technologically feasible software development costs: Once technological feasibility is established, software development costs should be capitalized.
- R&D purchased in a business acquisition: Such R&D is considered part of the acquired in-process R&D costs and should be capitalized as an intangible asset.
- R&D performed for sale to others (if certain criteria are met, this might be capitalized since the R&D is performed as a contractual activity with the expectation of future economic benefit).
Salaries for employees engaged in R&D activities and the design and construction of prototypes are typically expensed as incurred unless they are associated with one of the scenarios mentioned that warrants capitalization.
Therefore, when considering these options, the correct ones to be capitalized are: 1) Technologically feasible software development costs, 2) R&D purchased in a business acquisition, and potentially 4) R&D performed for sale to others, if it meets certain requirements.