CFA Practice Question

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CFA Practice Question

Which of the following costs related to software costs should be capitalized?
A. Costs related to coding
B. Costs related to product masters
C. Costs related to planning and design
Explanation: The costs of designing, testing, coding, and planning are to be expensed. Once the technological feasibility of the product is established, then product masters are made. The cost of these product masters and any costs up to the production of the product for sale will be capitalized.

User Contributed Comments 8

User Comment
RNAN Are "product masters" the same as "feasibility prototypes"?
ThePessimist Product masters are the materials that get sent for production - e.g. the CD that gets sent to the duplication facility.
volkovv I wasn't sure what product masters were, but that was the only logical choice, since all other choices happen before feasibility is established and thus should be expensed.
xjarl Erm.. so you can't establish feasibility before doing ALL design, coding & testing?

Design, coding & testing can very well be on a software update to a released product after feasibility clearly must be proven.

The curriculum says a "working prototype" is required. This can come in the form of an alpha or beta release, after which plenty more of at least coding & testing is done.
Dieckmann how do you value the master ?
Joel1980 Are you talking dirty to me Dieckmann?
lilbuck7 GAAP is wrong--trust me, I do accounting for a very large company that produces banking software. Coding can be capitalized after technical feasiblity is established -- actually any activites that relate to the building of the sw can be capitalized after feasiblity is established.
somk The costs of design and coding are embedded in the product master. all to be capitalised. on the other hand, Design and coding that dont become Alpha, Beta, Release Candidates, or product master are expensed. spoiling SW programmers more and more
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