Keystone Case Study
Keystone Computers & Networks, Inc.
December 31, 20X5
Memorandum on Accounting Issues: Accounting for Capitalization of Software Development Costs
Memorandum
To: Keystone Computers & Networks, Inc.
From: Adams, Barnes & Co.
Date: 11/17/2015
Note: KCN is currently developing networking software products to sell and started capitalizing costs in FY 20X5. The accounting procedures are described under FASB ASC 985-20-25 Costs of software to be sold, leased, or marketed. https://law.resource.org/pub/us/code/bean/fasb.html/fasb.985.2011.html
All costs incurred when establishing computer software are charged to the expense account until the technological feasibility has been established for the product. See (25-1)
Technological feasibility …show more content…
It is important that documentation and tracing of the program to product specifications have been done. Lastly the detailed program design need to have been reviewed for high risk development issues.
Working Model The working model is an operative version of the computer software that is completed in the same software language of the product that is going to be marketed and performs all functions planned for the product. Overall the completeness of the working model needs to have been tested and confirmed as consistent with the testing. After the technological feasibility has been established, the costs of coding and testing as well as other costs of producing products need to be capitalized. Included in the capitalized costs should be the interest costs incurred during the capitalization towards financing expenditures for the software development project. See (25-3) The budget also overruns of producing product masters due to trial and error do not necessarily indicate technological feasibility had not been reached. Also an entity can capitalize an allocated amount of direct costs. (25-5)
Once Cost capitalization ceases, amortization should begin as soon as the product is available for release to general customers.
December 31, 20X5
Memorandum on Accounting Issues: Accounting for Capitalization of Software Development Costs
Memorandum
To: Keystone Computers & Networks, Inc.
From: Adams, Barnes & Co.
Date: 11/17/2015
Note: KCN is currently developing networking software products to sell and started capitalizing costs in FY 20X5. The accounting procedures are described under FASB ASC 985-20-25 Costs of software to be sold, leased, or marketed. https://law.resource.org/pub/us/code/bean/fasb.html/fasb.985.2011.html
All costs incurred when establishing computer software are charged to the expense account until the technological feasibility has been established for the product. See (25-1)
Technological feasibility …show more content…
It is important that documentation and tracing of the program to product specifications have been done. Lastly the detailed program design need to have been reviewed for high risk development issues.
Working Model The working model is an operative version of the computer software that is completed in the same software language of the product that is going to be marketed and performs all functions planned for the product. Overall the completeness of the working model needs to have been tested and confirmed as consistent with the testing. After the technological feasibility has been established, the costs of coding and testing as well as other costs of producing products need to be capitalized. Included in the capitalized costs should be the interest costs incurred during the capitalization towards financing expenditures for the software development project. See (25-3) The budget also overruns of producing product masters due to trial and error do not necessarily indicate technological feasibility had not been reached. Also an entity can capitalize an allocated amount of direct costs. (25-5)
Once Cost capitalization ceases, amortization should begin as soon as the product is available for release to general customers.