Axcel Software began a new development project in 2015.The project reached technological feasibility on June 30,2016,and was available for release to customers at the beginning of 2017.Development costs incurred prior to June 30,2016,were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000.The 2017 revenues from the sale of the new software were $4,000,000,and the company anticipates additional revenues of $6,000,000.The economic life of the software is estimated at four years.2017 amortization of the software development costs would be:

Question

Quizplus · Accepted Answer

The amortization is calculated based on the costs incurred after technological feasibility ($1,400,000) over the economic life (4 years). Thus, $1,400,000 / 4 = $350,000. However, since the revenues in 2017 are $4,000,000 out of a total expected $10,000,000, the amortization should be based on the revenue ratio: ($1,400,000 * $4,000,000 / $10,000,000) = $560,000.

Axcel Software Began a New Development Project in 2015