What method does AF use to amortize the cost of computer software development co

Question

What method does AF use to amortize the cost of computer software development costs? How does this approach differ from U.S. GAAP? B2. AF does not report any research and development expenditures. If it did, its approach to accounting for research and development would be significantly different from U.S. GAAP. Describe the differences between IFRS and U.S. GAAP in accounting for research and development expenditures. B3. AF does not report the receipt of any governments grants. If it did, its approach to accounting for government grants would be significantly different from U.S. GAAP. Describe the differences between IFRS and U.S. GAAP in accounting for government grants. If AF received a grant for the purchase of assets, what alternative accounting treatments are available under IFRS?

Explanation / Answer

Answer: In Note 3.12, AF amortizes computer software development costs using thestraight-line method.The percentage used to amortize computer softwaredevelopment costs under U.S. GAAP is the greater of (1) the ratio of current revenuesto current and anticipated revenues or (2) the straight-line percentage over the usefullife of the software.This approach is allowed under IFRS, but not required.

Answer:B2 Except for software development costs incurred after technological feasibility hasbeen established, U.S. GAAP requires all research and development expenditures tobe expensed in the period incurred.IFRSdraws a distinction between researchactivities and development activities. Research expenditures are expensed in theperiod incurred.However, development expenditures that meet specified criteria are capitalized as an intangible asset.

Answer:B3 Both U.S. GAAP and IFRS require that donated assets be valued at their fair values. For government grants, though, the way that value is recorded is different under the two sets of standards. Unlike U.S. GAAP, donated assets are not recorded as revenue under IFRS. Instead , government grants must be recognized in income over the periods necessary to match them on a systematic basis with the related costs that they are intended to compensate. For grants related to assets, two alternatives are allowed: 1. Deduct the amount of the grant in determining the initial cost of the asset. 2. Record the grant as a liability, deferred income, in the balance sheet and recognize it in the income statement systematically over the asset's useful life.

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