According to a Financial Accounting Standards Board Statement, how are material,
ID: 2479007 • Letter: A
Question
According to a Financial Accounting Standards Board Statement, how are material, equipment and facilities costs associated with research and development accounted for?
a. The entire costs must be expensed unless it can be clearly demonstrated that the expenditures will have alternative future uses or unless contractually reimbursable.
b.
They must be capitalized when incurred and then amortized over their estimated useful lives.
c.
They may be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved.
d. They must be expensed as operating expenses.
a. The entire costs must be expensed unless it can be clearly demonstrated that the expenditures will have alternative future uses or unless contractually reimbursable.
Explanation / Answer
a. The entire costs must be expensed unless it can be clearly demonstrated that the expenditures will have alternative future uses or unless contractually reimbursable.
Reason
a. Materials, equipment, and facilities. The costs of materials (whether from the enterprise's normal inventory or acquired specially for research and development activities) and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses (in research and development projects or otherwise) shall be capitalized as tangible assets when acquired or constructed. The cost of such materials consumed in research and development activities and the depreciation of such equipment or facilities used in those activities are research and development costs. However, the costs of materials, equipment, or facilities that are acquired or constructed for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic values are research and development costs at the time the costs are incurred.
Source - http://www.fasb.org/resources/ccurl/286/565/fas2.pdf
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