Software Costs Flashcards
Annual Amortization of Software costs is the greater amount of?
The ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or
The straight-line method over the remaining estimated economic life of the product including the period being reported on.
What costs are expensed
All of the costs an entity incurs to develop the technological feasibility
Examples: Development of a working model of the software
Customer support and training
What costs are Capitalized?
The costs of producing product masters after technological feasibility is achieved
Example: Product master production
What are the rules for internal software?
Costs incurred to develop software for internal use are capitalized after the application development stage is reached
The costs are amortized over the benefited periods
If a computer software arrangement does not require significant production, modification, or customization of software, when will revenue be recognized?
When persuasive evidence of an arrangement exists
When delivery has occurred
When the vendor’s fee is fixed or determinable,
and collectibility is probable
What expenses and/or losses result from the development and production of software to be sold or leased?
Research and development expense
Amortization expense
Impairment loss
When must Contract Accounting (Percentage of completion) generally be used?
the company can make reasonably dependable estimates of the extent of progress toward the completion, contract revenues, and contract costs,
and both the buyer and seller can be expected to satisfy their obligations under the contract
Software Capitalization Process and subsequent write down
Compare Straight Line Depreciation vs Sales Ratio
Deduct higher of the two from the total
Compare remainder of the amount to NRV
If NRV is higher = leave alone
If NRV is lower = Write off (Impaired)
What are the Technological Feasibility Rules?
All costs prior to TF are expensed as R&D
After TF all costs are capitalized and reported at lower of Unamortized costs or NRV
If a Software required significant production, modification or customization how should it be accounted for?
% of Completion or Completed Contract
If a Software arrangement does NOT required significant production, modification or customization how shall revenue be recognized?
When persuasive evidence of an arrangement exists
When delivery has occurred
When the vendor’s fee is fixed or determinable,
and collectibility is probable
ALL must be met
