FASB Interpretation No. 4

INTRODUCTION                                                                                                                                                                               The FASB has been asked to explain the applicability of FASB Statement No. 2, “Accounting for Research and     Development Costs,” to the cost of tangible and intangible assets to be used in research and development activities of an enterprise when those assets are acquired in a business combination accounted for by the purchase method.
Broad guidelines about the activities to be classified as research and development and the elements of costs to be identified with those activities are set forth in paragraphs 8–11 of Statement No. 2. Paragraph 12 of that Statement provides that research and development costs shall be charged to expense when incurred.
However, some costs associated with research and development activities shall be capitalized if the item has alternative future uses in research and development or otherwise (see paragraphs 11(a) and 11(c) of Statement No. The cost of materials consumed,the depreciation of equipment and facilities used, and the amortization of intangibles used in research and development activities are research and development costs.
Statement No. 2 amends APB Opinion No. 17,“Intangible Assets,” to exclude from the scope of that Opinion those research and development costs encompassed by the Statement but does not amend APB Opinion No. 16, “Business Combinations.”Paragraph 34 of the Statement indicates that paragraph 11(c) is not intended to alter the conclusions in paragraphs 87–88 of APB Opinion No. 16 regarding allocation of cost to assets acquired in a business
combination accounted for by the purchase method.