A company that capitalizes rather than expenses software development costs, will have a less volatile net income, all other things equal.

Question

Quizplus · Accepted Answer

By capitalizing software development costs, the expenses are spread out over a longer period of time, resulting in less volatility in the net income. This is because the costs are not immediately recognized as an expense in the period they are incurred, but instead are recorded as an asset and depreciated over time.

A Company That Capitalizes Rather Than Expenses Software Development Costs