Software Costs Flashcards
What are the two methods to amortize software costs?
Straight line = Total capitalized cost x 1 / Estimate economic life
% of Revenues =
Total capitalized cost LIFE
x [Current gross revenues / Total PROJECTED gross revenue]
How to calculate the patent cost on balance sheet net of amortization?
Total capitalized costs on Granted date (not include research & development costs)
Less: (Total capitalized costs N / 12 months)
—————————————-
= Net patent costs
When do you expense software costs?
When do you capitalize costs? And what costs are capitalized?
Expense any costs like program design, planning, coding, testing (prototype), researching, training and maintenance, salaries/wages of scientists working on research/development project, and any equipment only assigned to for Research/Development on product (no depreciation expense involve)
During Preliminary Project State and Before “Technological Feasibility Established” date
For costs that happen after “Technological feasibility established date” = Capitalized costs (such as additional coding testing, and producing product masters).
After product has been released for sale, use inventory and COGS accounts.
When software costs are expense for internal software use only? What type of costs expense?
When software costs capitalized for internal software use only?
What are type of costs to be capitalized for internal software use only?
Expense costs: for Preliminary project stage.
Type of costs included: coding, testing, training, maintenance.
Capitalized costs:“After preliminary project stage ended” (or: On the date of technological feasibility)
Costs to capitalize are:
(1) Direct costs for materials (i.e. masters copy) and services
(2) Employee costs directly associated with project
(3) Interest costs as incurred for internal software project.
What gets added to Inventory costs of goods sold for software?
When product is released for sale, add these costs to inventory such as:
(a) Duplication of computer software and training materials from product masters (#### of units)
(b) Packaging product (### units)
When have equipment used in software research development, usually they are expense during preliminary project stage (before date of technological feasibility) - when are they capitalized for depreciated?
Capitalize an equipment (depreciate over # of whatever years (useful life)) when the equipment has alternative use.
Example:
Special equipment to be used solely for development of Product Y- $60,000
o The equipment has no other use and has an estimated useful life of four years
Special equipment to be used solely for development of
Product Y - $60,000. The equipment has no other use and has an estimated useful life of four years (Capitalize ONLY if it HAS alternative use).
Also: Company purchase equipment only for Developing a new product. Equipment has 5 year life. Since the equipment can be used only for this project it should be expense immediately, even though the project is expected to take 5 years. It would be capitalized over its useful life, only if the equipment had an alternative use.
If software previously developed for internal use is subsequently sold to outsiders, proceeds received (e.g., from the license of computer software, net of incremental costs) should be:
Applied first to the ____ _____ of the software, then recognized as revenue (after the ___ ____ of the software has reached zero).
Applied first to the CARRYING AMOUNT of the software, then recognized as revenue (after the CARRYING AMOUNT of the software has reached zero).
Example:
Software Carry Value $100,000
Proceeds - 300,000
————– ——————-
= Revenue $200,000
Are Costs related to research done on behalf of a client are expense as an operating expense or research & development expense?
Costs related to research done on behalf of a client are expense as an operating expense.
When an equipment does not have any future for plans for use after doing the current research & development project, is it expenses right away as R&D or Capitalized and Depreciate it in R&D expense?
When an equipment does not have any future for plans for use after doing the current research & development project, is it expenses right away as R&D or Capitalized and Depreciate it in R&D expense?
