Question

Question: Indicate whether the following items are capitalized or expensed in the current year. (a) Purchase cost of a patent from a competitor. (c) Organizational costs. (b) Research and development costs. (d) Costs incurred internally to create goodwill.

Short answer

Answer

Particulars	Capitalized/Expensed
Purchase cost of a patent from a competitor	Capitalize
Research and development costs	Expense
Organizational costs	Expense
Costs incurred internally to create goodwill	Expense

Step-by-step solution

Meaning of Capitalization

The practice of depreciating the expenses of acquiring an asset throughout the asset's life, rather than the time the expense was incurred, is known as capitalization.

Meaning of Expensed Items

The cost of operations that a firm incursto earn revenue is an expense. "It costs money to make money," as the adage goes. Payments to suppliers, staff wages, factory leases, and equipment depreciation are common costs.