On August 1, Year 1, SuperCool Software (SCS) began developing a software progra

Question

On August 1, Year 1, SuperCool Software (SCS) began developing a software program to allow individuals to customize their investment portfolios. Technological feasibility was established on January 31st of year 2, and the program was available for release on March 31, year 2. Development costs were incurred as follows:

SCS expects a useful life of five years for the software and total revenues of $10,000,000 during that time. During Year 2, SCS recognized $2,000,000 in revenue, included in the $10,000,000 total revenue estimate.

Calculate the required amortization for Year 2 (Hint: calculate using both methods, choose the greater number)

Amortization for year 2________________

August 1 through December 31, Year 1 $ 4,000,000 January 1 through January 31, Year 2 600,000 February 1 through March 31, Year 2 900,000

Explanation / Answer

The cost incurred during year1 and during january of year2 will be charged as expense as there was no product in existance till that date.After that period ,all cost incurred should be capitalised as productis ready for use.

so capitalized cost of intangible(software) =$900,000

Amortisation for year 2 as per straight line method = Cost/usefu life in years

           = 900000/5 = $ 180000

Amortisation using percentage of revenue method: Cost*revenue in year2/Total estimated revenue

      =900000*2000000/10000000

     = 180000

Both method yields same amortisation.

so amortisation expense for year 2 : 180000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.