Question

Accounting for Software Development Costs During 2020, PC Software Inc. developed a new personal computer database management software package. Total expenditures on the project were 54,800,000, of which 40% occurred am the technological feasibility of the product had been established. The product was completed and offered for sale on Janoary 1, 2021. During 2021, revenues from sales of the product tota $7,680,000. The package is expected to be successfully marketable for five years, and the total revenues over the life of the product are estimated to be $32,000,000 Required a. Prepare the journal entry to account for the development of this product in 2020. Account Name Dr. Cr. Software intangible Asset 1.920,000 Research and Development Expense OX 1,920,000 Note Receivable Dr. b. Prepare the journal entry to record the amortization of capitalized computer software development costs in 2021. Account Name Cr. Amortization Expense 460,800 Software intangible Asset 450.800 What disclosures are required in the December 31, 2021, financial statements regarding computer software costs? Enter the missing items from the following note disclosure. At December 31, 2021, the unamortized software intangible asset totals $ 1,920,000 This is equal to $ 1920,000 originally capitalized less amortization in 2021 of $ 460,800 The amount charged to expense as amortization of software intangible asset in 2021 was $ 384,000 The estimated net realizable value of computer software is greater than the remaining unamortized software intangible asset. d. Suppose this product were developed for internal use. How would your answers to (al (bl and (c/ change? Procedures are generaly the same for internally used software as for software produced for sa.

Answer 1

As per IAS 38, Intangible Assets, All the initial research expenses will be expensed out. Software development costs are capitalized only after technical and commercial feasibility of the asset for sale or use have been established. Total expenditure incurred on the project = $4,800,000 of which 40% occurred after the technological feasibility of the product had been established. Hence 60% of the project cost will be expensed to Software development expense and 40% of the project cost after technological feasibility of the product had been establised will be capitalized. a. Account Name Software Intangible Asset Software Development Expense To Cash, Payables, Accruals (To record the development of the product in 2020) Debit $1,920,000 $2,880,000 Credit ($4,800,000 * 40%) ($4,800,000 * 60%) $4,800,000 Debit $460,800 b. Account Name Software Amortization Expense To Software Intangible Asset (To record the amortization of capitalized software development costs in 2021) Credit ($1,920,000 * $7,680,000/$32,000,000) $460,800 c. At December 31, 2021, the unamortized software intangible asset totals $1,459,200. ($1,920,000 - $460,800) This is equal to $1,920,000 originally capitalized less amortization in 2021 of $460,800 The amount charged to expense as amortization of software intangible asset in 2021 was $460,800 The estimated net realizable value of computer software is greater than the remaining unamortized software intangible asset. d. Procedures are generally the same for internally used software as for software produced for sale.