Over a 10 month period Company X expended 3000 $ / month to develop software for its own use . For the first 3 months Company X couldn’t estimate the probable future benfits of the expenditures . Over the remaining 7 months the expenditures met the capitalization criteria for indentifiable intangible assets in accordance with IFRS.
What amount of the software expenditures should company X capitalize under IFRS and US GAAP ?
According to CFA curriculum the treatment of software development costs under US GAAP is similar to the treatment of all costs of internally developed intangible assets under IFRS. Shouldn’t the answer be the same for both US GAAP and IFRS?
Why for this example under IFRS company X should capitalize 3000$*7 months but under US GAAP it will capitalize all of the expenditures 3000$*10 months? I can’t get where is this difference coming from?
IFRS and US GAAP will capitalize software development expenditure (PURPOSE:FOR SALE) once the technical feasibility of same has been established. That is expenditure of 7 months shall be capitalized.
IFRS has same accounting treatment for software that is developed for it OWN USE. However, US GAAP states all the expenses shall be capitalized if the software is for OWN USE irrespective of stage of development/research.
IFRS and US GAAP will capitalize software development expenditure (PURPOSE:FOR SALE) once the technical feasibility of same has been established. That is expenditure of 7 months shall be capitalized.
IFRS has same accounting treatment for software that is developed for it OWN USE. However, US GAAP states all the expenses shall be capitalized if the software is for OWN USE irrespective of stage of development/research.
This is a quote from CFA curriculum with regard to developing a software product under US GAAP(Reading 30, 2.2.2):
“Costs incurred to develop a software product for sale are expensed until the product’s technological feasibility is established and are capitalized thereafter. Similarly, companies expense costs related to the development of software for internal use until it is probable that the project will be completed and that the software will be used as intended. Thereafter, development costs are capitalized”
I can’t deduct from this that under US GAAP the expenses will be capitalized for it’s own use in any stage. And I can’t find anywhere else in the curriculum this difference.
I think the reason is that it is more probable to complete the project for internal use and in this case under US GAAP all the costs will be capitalized but this is not clear in the question.
Edit: Also the question is ending with : the software was completed on time and is in use today …which I suppose doesn’t make any difference