Axcel Software began a new development project in 2012. The project reached technological feasibility on June 30, 2013, and was available for release to customers at the beginning of 2014. Development costs incurred prior to June 30, 2013, were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. The 2014 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. 2014 amortization of the software development costs would be:

Question

Quizplus · Accepted Answer

The amortization of software development costs begins once the product is available for release. The costs to be amortized are $1,400,000 (costs incurred after technological feasibility). The amortization for 2014 is calculated using the straight-line method over the economic life of four years: $1,400,000 / 4 = $350,000. However, the revenue method is used here, where the amortization is based on the ratio of current year revenue to total expected revenue: ($4,000,000 / $10,000,000) * $1,400,000 = $560,000.

Axcel Software Began a New Development Project in 2012