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... ... middle of paper ... ....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
If done right, I believe that all of the costs can be allocated to each of the three products through both direct and overhead costs. The only direct costs that are being included currently are labor and manufacturing costs. I broke up overhead into overhead based off direct labor and overhead based on units sold.
[1] Noreen, Eric W., Brewer Peter C., et al., Managerial Accounting for Managers, Second Edition, McGraw-Hill/Irwin, New York, NY, 2011.
Siegel Ph.D. CPA, Joel G.; Shim Ph.D., Jae K. (2010-02-01). Dictionary of Accounting Terms (Barron's Dictionary of Accounting Terms) (p. 129). Barron's Educational Series. Kindle Edition.
Financial statement users around the globe use financial statements to evaluate the performance of companies (Fundamentals of Financial Accounting, 2006). In order to locate a company’s reported assets, liabilities, expenses and revenues, statement users rely on four types of financial statements. The four financial statements include: Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows (Fundamentals of Financial Accounting, 2006, p. 6). Each of these reports provides different information to the financial statement user. The Balance Sheet reports at a point in time: a company’s assets (what it owns), liabilities (what it owes) and stockholder’s equity (what is left over for the owners) (Fundamentals of Financial Accounting, 2006, p.7). The Income Statement shows whether a business made a profit (net income) during a specific period of time (Fundamentals of Financial Accounting, 2006, p. 10). The Statement of Retained Earnings illustrates what portions of the company’s earnings was paid to stockholders and retained by the company for future operations (Fundamentals of Financial Accounting, 2006, p.12). Finally, the Statement of Cash Flows reports summarizes how a business’ “operating, investing, and financial activities caused its cash balance to change over a particular range of time” (Fundamentals of Financial Accounting, 2006, p.13).
A key factor in determining a project's viability is its cost of capital [WACC]. The estimation of Boeing's WACC must be consistent with the overall valuation approach and the definition of cash flows to be discounted. Note that this process is a forward looking focus and is laden with uncertainty. It is how the assumptions are modeled that many costly mistakes can be made. While finding a rate of return for an individual project, it is important to remember that WACC is only appropriate for an individual project.
Janice Corporation UK is a corporate company that manufactures technology, and the changes like introducing a new product line and redesigning the package will not directly appear on the company’s financial statement, but these changes can improve the company’s competitive advantages in the market. Therefore, the investors look into the company’s future cash flow and assume that will be higher going forward by calculating the fair value. Calculating the fair value, the company and investors estimate future growth rates, profit margins and other risk factors that can influence the company’s cash flow. This paper will address about the economic consequences, the advantages and disadvantages of fair value, and
Siegel Ph.D. CPA, Joel G.; Shim Ph.D., Jae K. (2010-02-01). Dictionary of Accounting Terms (Barron's Dictionary of Accounting Terms) (p. 129). Barron's Educational Series. Kindle Edition.
An important part of financial planning for corporations is the annual report. Publically held companies are required to submit an annual report to the SEC and private companies, even though not required, can use an annual report to gauge the performance of the company for the past year and use the report to plan for the future. The financial statements that make up an annual report are the income statement, the balance sheet, and the statement of cash flows. (Melicher, 2014) Once all of the financial information has been compiled and the three statements that make up the annual report have been completed a corporation can then start to analyze the data. There are several different categories of financial ratios
It was the year 1987 when the Gartner Group popularized the form of full cost accounting named Total Cost of Ownership (TCO)(author, Gartner Total Cost of Ownership). Originally TCO was mainly used in the IT business sector. This changed in the 1980’s when it became clear to many organizations that there is a distinct difference between purchase price and full costs of a products ownership. This brings us towards the main strength of conducting a TCO analysis, besides taking the purchase costs into account, which consist of the amount a money an organization pays for the required service, product or capital outlay. It also considers 1. Acquisition costs; these can consist of sourcing, administration, freight, and taxes. 2. Usage costs, which consists of the costs associated with converting the given product or service into a finished product. And finally 3. End of life cycle costs; the costs or profits incurred when disposing of a product. TCO can be seen as a form of full cost accounting; it systematically collects and presents all the data for each proposed alternative.
Hoggett, J., Edwards, L., Medlin, J. (2008). Accounting, 6th Edition. John Wiley & Sons Australia Limited.
Gibson, C. H. (2011). Financial reporting & analysis: Using financial accounting information. (12th ed.). Mason, OH: South-Western Cengage Learning.
Romney, Marshal, and Paul Steinbart. Accounting Information Systmes. 10th ed. Upper Saddle River: Pearson Education, 2006. 193-195.
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
In Capital Budgeting Simulation, Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability Index (PI) can be analyzed two mutually exclusive capital investment proposals. Silicon Arts Inc. (SAI) is a four-year-old company, manufactures digital imaging integrated Circuits (ICs) that need to analyze two capital investment proposals to pursue its growth plans. "SAI’s Chairman is planning to increase market share and keep pace with technology, which can be done by either expanding the existing Digital Imaging market share or entering the Wireless Communication market," (Simulation, UOP). An analysis reveals that an expansion into the Wireless communication can be beneficial than Dig-Image. However, a number of risks, internal and external are inherent in joining this industry. This paper will analyze investment risk decisions and mitigation of risks by using a number of strategies.
When accounting information provided in time is relevant. But it is uncertain and less reliable at early stages. Relevance of accounting information is lost if users need to wait to gain while information gains