Capitalizing the costs of developing a software program for sale Essay

Capitalizing the costs of developing a software program for sale Essay

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In order to gain a better understanding of both the software industry and the applicable guidelines for capitalizing software, some outside research into the industry and FASB standards was completed. This research was complied as a part of the risk assessment portion of the audit process (Whittington & Pany, 2012). The issue of capitalizing the costs of developing a software program for sale is a complicated issue. This is due in part to the fact that the nature of technology is constantly changing so clear procedures regulating when to write off a software system vary according to the pace of technological changes within the industry.
Therefore, while a company is developing software, they should report the incurred creative costs to a research and development account (Warfield, Weygandt, & Kieso, 2007). Once the software product has reached a point where it is feasibly considered a technological product the costing can be adjusted to begin capitalizing the costs (Warfield, Weygandt, & Kieso). As established in FASB Statement No. 2, any costs incurred in the developing, creating, testing, and so forth of software products will be charged to the research and development expense account; however any adjustments to the software for upgrades and any costs to market the product would not be included in the research and development expense account (Accounting-Financial-Tax.com, 2012). This is because by the point the product is ready to be marketed or needs to be upgraded to meet new technological standards, the feasibility of the product has been established and therefore the product should be capitalized (Accounting-Financial-Tax.com). If however, after meeting the feasibility requirements, there is substantial risk associate...


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....com. (2012). Capitalization and amortization of software costs. Retrieved from, http://accounting-financial-tax.com/2009/05/capitalization-and-amortization-of-software-cost/
Accounting For Management. (2011). Return on Shareholder’s investment or net worth ratio. Retrieved from, http://www.accountingformanagement.com/retun_on_share_holders_investment_or_net_worth.htm
Kennon, J. (2012). Return on assets (ROA). Retrieved from, http://beginnersinvest.about.com/od/incomestatementanalysis/a/return-on-assets-roa-income-statement.htm
Tracy, J. A. (2004). How to read a financial report (6th ed.). Hoboken, NJ: John Wiley & Sons.
Warfield, T. D., Weygandt, J. J., & Kieso, D. E. (2007). Intermediate accounting (2nd ed.). Hoboken, NJ: John Wiley & Sons.
Whittington, R., & Pany, K. (2012). Principles of auditing and other assurances (18th ed.). New York, NY: McGraw-Hill

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