CFAI 2011 Q37 morning exam software, official, scenario, morning, balance

torontoanalyst

The official answer is "C.) the same," but if you were to expense the $2.5MM of capitalized software costs, wouldn't a portion of the $4.5MM in net capitalized software on the balance sheet left over from 2009 still be amortized? Thus, the total expense from software (both development costs and amortization) would be greater than the $2.5MM incurred in the current scenario, where the development costs are capitalized and then amortized.

What are your guys' thoughts?

thanks

Analyze_This

it still isn't material, the other number was still bigger

CPATrader

Actually it would be material.

Scenario 1 - Capitalize 2010 software development costs (current accounting treatment)
- Capitalized amount = $2.5MM
- Amortization expense = $2.5MM
- Development expense = $0
- Total expense = $2.5MM

Scenario 2 - Expense 2010 software development costs (alternative accounting treatment)
- Capitalized amount = $0
- Amortized expense = Some portion of the $4.5MM in net capitalized software assets from previous periods. Notes say all amortization is straight line with a maximum lifespan of 5 years. Thus, at a minimum, the amortization expense will be $900k and could theoretically be as high as $4.5MM.
- Development Expense = $2.5MM
- Total expense = $3.4MM at a minimum to a theoretical max of $6MM

$3.4MM at a minimum vs. $2.5MM in the current scenario = material

chandsingh

Who even got this right.

You would have to be a freak to even get this right with the exact reasoning they gave.

giants2010

homie Wrote:
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> Who even got this right.
>
> You would have to be a freak to even get this
> right with the exact reasoning they gave.


+1