Final answer:
Development costs can be capitalized if the costs are likely to provide future economic benefits and satisfy certain criteria. This involves measuring the present discounted value of future benefits against immediate costs when assessing an investment in areas like business and policy-making.
Step-by-step explanation:
Development costs can be capitalized if it can be shown that the costs will provide future benefits. According to accounting standards, costs associated with research are typically expensed when incurred, whereas some development costs can be capitalized under specific conditions. This is due to the nature of development costs in potentially bringing future economic benefits and being identifiable; that is, the technical feasibility of completing the intangible asset for use or sale can be demonstrated, the intention to complete and use or sell it exists, along with the ability to use or sell it. Additionally, there must be a way to reliably measure the expenditure attributable to the asset during its development.
Understanding these capitalization criteria is essential for making informed decisions about investment in physical capital or human capital. Firms and governments must evaluate the present discounted value of future benefits against the present costs to make rational investment decisions. This concept extends to various fields such as finance, business, and environmental policy.