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Microsoftware Inc. in the process of engineering new software. You are their Controller and Bill Huffman,...

Microsoftware Inc. in the process of engineering new software. You are their Controller and Bill Huffman, CEO looks to you for advice on the millions of dollars of costs incurred in the current year in engineering the new product. Please provide and discuss the accounting literature concerning this new product

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Answer #1

Facts of the case: Microsoftware Inc. is a firm involved in engineering of new softwares.

Issue: Treatment of Cost incurred in Engineering the new product

Solution: As per generally Accepted Accounitng Principles, Software companies are required to capitalize the entire cost incurred from the start of planning and development until the product isready for release. Once the product is ready for release or is in Completed stage, the capitalized cost will be amortized over the life of product.

As a Controller, Advice to CEO would be to capitalize the entire cost incurred till the stage of completion of product. Once product is ready for release, Following accrual method, Amortization(Expense recognition in Income & Expenditure Account) will be carried out to match it with the sales taking place upon completion of product or release of product in market.

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