Question

8. German Company, PAS software is developing an ERP (Enterprise Resource Planning) system for sale to mid-size companies around the world. Software development started during 2018, during which time $45 million was incurred. During 2019, and additional $60 million was incurred, with $10 million of this incurred after technological feasibility of the new software had been established. Record the journal entry for the 2019 software development costs.

Refer back to question 8. Assume this product was released to customers in early 2020, and is assumed to have a 10-year useful life. Revenues from sale of the ERP system in 2020 were $30 million, and total expected revenues over the life of the product were $200 million. Record the journal entry for amortization of the capitalized software in 2020.

Answer 1

8. Development of PAS software ERP for sale to mid size firm.

As for Year 2018 , not meet the recognition criteria cannot book as Asset hence charged to development cost.

Development Cost A/c Dr. $45,00,000

To P and L A/c $ 45,00,000

( Being Expenses charged)

As for Year 2019 , not meet the recognition criteria cannot book as Asset hence charged to development cost.

Development Cost A/c Dr. $60,00,000

To P and L A/c $ 60,00,000

( Being Expenses charged)

But during the same meet the recoginition criteria and $ 10 million cost incurred.

Intangible Asset A/c Dr. $10,00,000

To Expenses Pyable A/c $ 10,00,000

Extended part of Q8.

Require to be depreciated at 10 year as a base useful life of an Asset. Amortisation period is 10 years. Amortisation method is production capacity i.e. 200 millions. Accordingly amortised over period of 10 years on the production capacity.

Amortisation on Intangible Assets A/c Dr. 1.5$ Million

to Intangible Asset A/c 1.5$ million

Working notes

As method is on the production capacity 200 Million $ and this year sale is 30 $ Million

30$ /200$ = 0.15 * 10 $ million = 1.5 $ Million