Question

Which of the following are exceptions to expensing research and development costs and should instead be capitalized?

1) R&D performed for sale to others
2) Design and construction of prototypes
3) Technologically feasible software development costs
4) Salaries for employees engaged in R&D activities
5) R&D purchased in a business acquisition

Answer 1

The exceptions to expensing research and development costs that should be capitalized include R&D performed for sale to others, design and construction of prototypes, technologically feasible software development costs, salaries for employees engaged in R&D activities, and R&D purchased in a business acquisition.

Step-by-step explanation:

When it comes to expensing research and development costs, there are certain exceptions that require capitalization instead. The following are exceptions to expensing R&D costs:

1. R&D performed for sale to others
2. Design and construction of prototypes
3. Technologically feasible software development costs
4. Salaries for employees engaged in R&D activities
5. R&D purchased in a business acquisition

These exceptions should be capitalized because they represent costs that create future economic benefits beyond the current period. By capitalizing these costs, they are recorded as assets on the balance sheet and then recognized as expenses over time through depreciation or amortization.