Question

A company entered into a two-year cloud computing arrangement by paying $80,000 immediately to a vendor and also incurring the following costs:

Pre-implementation planning	$	40,000
Integration of software		75,000
Coding and customization of software		110,000
Post-implementation operation		55,000

Determine the amount the company should capitalize at the beginning of the arrangement.

Answer 1

The accounting board has issued guidelines with respect to capitalization of certain implementation costs if arrangement is internal use software project.

As the agreement is for two years and there is customization task, the task in hand can be assumed to be internal use software project.

As per guidelines, certain costs incurred during application stage shall be capitalized. These include integration of software, coding and customization of software among others.

The guidance further requires that to expense costs during preliminary project and post implementation. The expenses include pre-implementation planning and post-implementation operation which won’t be capitalized.

	Amount ($)
Cost of arrangement	80,000
Pre-implementation planning	NIL
Integration of software	75,000
Coding and customization of software	110,000
Post-implementation operation	NIL
Total cost of software project	$ 265,000