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Basic Question 2 of 10
In 2015 Tollhouse Company incurred the following costs in designing and producing a new software product:
Coding & testing costs incurred to establish a point of technological feasibility: $10,000
Coding & testing costs incurred beyond the point of technological feasibility: $44,000
Costs to produce master copies of software: $18,000
Copies of product software to be used in training: $25,000
Product packaging: $12,000
Completion of detailed program design: $15,000
Coding & testing costs incurred to establish a point of technological feasibility: $10,000
Coding & testing costs incurred beyond the point of technological feasibility: $44,000
Costs to produce master copies of software: $18,000
Copies of product software to be used in training: $25,000
Product packaging: $12,000
What amount should be capitalized on Tollhouse's 12/31/2015 balance sheet as software costs subject to amortization?
User Contributed Comments 20
| User | Comment |
|---|---|
| examinee | What about product packaging and software in training? Shouldn't they be capitalized too? |
| jimmymh | yea, shouldn't product packaging and software in training be capitalized? |
| fuller | they should be included as inventory, not capitalized. |
| o123 | surely training software isnt inventory...but I guess training as opposed to testing, is not capatalized. |
| Masterkang | Man I have seen the question the third time, got it still wrong :-) Costs AFTER Feasibility can be capitalized |
| bahodir | In my opinion, Copies of product software to be used in training and Product packaging are expensed as incurred, but not capitalized. Since in later years the firm may need to produce other copies and package them, costs of which should be expensed in those years. |
| jmcarr02 | What if the point of technological feasability wasn't met ? |
| freda | I thought the option to capitalise development R&D is only available to those reporting using IFRS, not US GAAP? |
| AusPhD | expense it baby |
| viannie | freda: u are right but for software development including website development, it's an exception. check out the curriculum pages 363 |
| cong | this assumes GAPP not IFRS. |
| prajacti | pls note that $25000 are not "training" expenses, but production expenses related to "software to be used in training" and hence inventory (production) costs |
| visiblebob | How about some dates on this question to establish a proper timeline? No way would somebody put out a question with industry jargon like "master copy" and not supply dates with it to give the non-techies in the audience some idea of when a master copy might be made. I understand that it seems obvious, but adding dates to a question based on chronology also seems obvious to me. |
| bsm9 | You can never ever capatilize training or related expenses. |
| Ifi2703 | Freda - dont forget that under IFRS you only capitalise development costs (research costs are expensed)...and even then only under certain conditions. With US GAAP you expense everything except after the point of technological feasibility (with regards to software development). Although, with this question and as someone esle mentioned, training costs can be assumed to be an expense (for example the may need to train people each year and cannot keep capitalising these costs). That's the way i understand it anyway... |
| jonan203 | note to self, production costs are a part of inventory. |
| vatsal92 | Software Development costs are capitalized (IFRS and US GAAP), which involves costs related to producing master copies after the establishment of the point of technological feasibility. Whereas, costs to bring software to normal functioning are expensed. |
| robertdole | Production costs are part of inventory because they relate to the dissemination of the actual good. |
| bryce_81 | Isn't it optional to capitalize after the point of feasibility, but not required? They can expense it if they want, so I suppose we have to assume this company prefers to capitalize over expense? |
| bryce_81 | The question should be what 'could' be capitalized |
Your review questions and global ranking system were so helpful.
Lina
Learning Outcome Statements
compare the financial reporting of the following types of intangible assets: purchased, internally developed, acquired in a business combination;
describe the different amortisation methods for intangible assets with finite lives and calculate amortisation expense;
describe how the choice of amortisation method and assumptions concerning useful life and residual value affect amortisation expense, financial statements, and ratios;
CFA® 2024 Level I Curriculum, Volume 3, Module 23.