NXS Semiconductor prepares its financial statements according to International Financial Reporting Standards. The company incurred the following expenditures during 2016 related to the development of a chip to be used in mobile devices:

Salaries and wages for basic research ...........................3,450,000

Materials used in basic research ................................. 330,000

Other costs incurred for basic research ..........................1,220,000

Development costs .................................................1,800,000

Legal and filing fees for a patent for the new technology .... 50,000

The development costs were incurred after NXS established technological and commercial feasibility and after NXS deemed the future economic benefits to be probable. The project was successfully completed, and the new chip was patented near the end of the 2016 fiscal year.

Required:

1. Which of the expenditures should NXS expense in its 2016 income statement?

2. Explain the accounting treatment of the remaining expenditures.