Question

Under SFAS 141R, a. both direct and indirect costs are to be expensed. b. both direct and indirect costs are to be capitalized. c. indirect costs are to be capitalized and direct costs are to be expensed. d. direct costs are to be capitalized and indirect costs are to be expensed.

Answer 1

The correct answer is b) both direct and indirect costs are to be expensed.

Step-by-step explanation:

The capitalized cost refers to the present value of a project whose useful life is considered perpetual. It can also be considered as the present value of a perpetual cash flow, such as roads, bridges, etc. It is also applicable in projects that must ensure continuous production, in which assets must be replaced periodically.

The comparison between alternatives through capitalized cost is made with the premise of having the necessary funds to replace, for example, a device, once its useful life has been completed.