Question

During the year just ended, Honeyblue Corp. incurred costs to develop and produce a routine, low-risk computer software product as follows:

Completion of detail program design $13,000

Costs incurred for coding and testing to establish technological feasibility 10,000

Other coding costs after establishing technological feasibility 24,000

Other testing costs after establishment of technological feasibility 20,000

Costs of producing product masters for training materials 15,000

Duplication of computer software and rtrainiung materials from product masters (1,000 Units) 25,000

Packaging product (5600 units) 9,000

The guidance pertaining to accounting for the costs of computer software to be sold, leased, or

otherwise marketing applies.

Q#1a. In Honeyblue's December 31 balance sheet, what amount should be capitalized as software

cost subject to amortization? Explain. (3 points)

Q#1b. In Honeyblue's December 31 balance sheet, what amount should be reported in inventory? Explain.

Answer 1

Q1a

As per IAS 38 Intangible Assets, in relation to a software the following costs are to be capitalized-

Initial recognition: computer software

• Purchased: capitalize
• Operating system for hardware: include in hardware cost
• Internally developed (whether for use or sale): charge to expense until technological feasibility, probable future benefits, intent and ability to use or sell the software, resources to complete the software, and ability to measure cost.

So in the given case $44,000 should be capitalized because as per FASB costs incurred before establishing technological feasibility are research and development costs and must be expensed off. Costs incurred after technological feasibility should be capitalized for internally developed softwares.

1b

The inventory amount would be $49,000 because that is what Honeyblue intends to sell. The training module, duplicate softwares and packaging all form part of inventory.