The Theoretical Justification for Expensing Research and Development (R&D) Cost

question 24

Multiple Choice

The theoretical justification for expensing research and development (R&D) cost as it is incurred is based on which of the following arguments?

• A) R&D costs provide no future benefits, thus it does not meet the definition of an asset
• B) R&D costs are incurred to generate current period revenue; thus the matching concept requires that it be expensed as incurred.
• C) Whether R&D costs that have been incurred will provide future benefit is uncertain, thus it does not meet the definition of an asset.
• D) Since R&D costs have been incurred during the current period, they meet the definition of an expense.

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Definitions:

Activity-Based Costing

An accounting method that assigns costs to products and services based on the resources they consume and the activities they require.

Overhead Costs

Indirect costs of products or services.

Capacity-Sustaining Cost

Costs incurred to maintain the production capacity of a company at current levels, including costs for maintenance and repair of equipment.