CFA Practice Question
Seagram Ltd. made the following expenditures during 2008:
Costs of market research activities: $75,000
Costs to develop computer software for internal use in Seagram's general management information system: $100,000
Costs of market research activities: $75,000
What amount of these expenditures should Seagram report in its 2008 income statement as research and development expenses?
A. $0
B. $175,000
C. $75,000
Explanation: Costs of market research are not R&D expenses, but marketing expenses. Costs to develop software for the company's internal use is not an R&D expense.
User Contributed Comments 11
| User | Comment |
|---|---|
| danlan | What kind of expense is cost to develop software for the company's internal use? |
| armanaziz | Cost to develop software for company's internal use is not an expense - it is capitalized. |
| mark98007 | ...only once feasability is established |
| valeris | No, I think feasibility comes in if software is to be sold. |
| Birdy101 | guys, these items are all expensed. However in a differnet account. it is a question you have to read carfully. did also the mistake :( |
| StanleyMo | Costs to develop software for the company's internal use is not an R&D expense. What category shall we choose for this? |
| iambroke | i found this online- "internal use software is classified as "general property,plant, and equipment" (PP&E) as defined in Statement of Federal Financial Accounting Standards(SFFAS) No. 6, Accounting for Property, Plant, and Equipment" |
| mc42086 | Internal Software is capitalized unless the company can recoup the cost by charging a specific fee(s) to specific client(s). It is added to PP&E and depreciated, just like a factory would be, over its useful like. Generally software is depreciated over a 3-5 year period. |
| ninad123 | Software for internal use has same treatment as for external use in IFRS (i.e. expense till feasibility) US-GAAP you capitalize internal use software. eg. Amazon generally capitalizes Software expense Microsoft expenses it |
| Friso | What if you're a company selling market information? There is an argument you can capitalize the 75,000, since it is of use for more than 1 period. I just hope the question on this exam are not this multi-interpretable. |
| praj24 | KMT R&D expenses! |