CFA Practice Question

CFA Practice Question

Seagram Ltd. made the following expenditures during 2008:

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!
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