Question

Amortization of the software costs amounted to HUF 6,745 Million in the fiscal year ending

December 31, 2015. Suppose the company had spent HUF 7,325 million in the fiscal year

ending December 31, 2015 and the company had always expensed the software costs instead

of capitalizing the costs, what would be the change in the P&L for the fiscal year ending

December 31, 2015?

Answer 1

Any expenditure which was incurred on a intangible asset should be amortized depending on the life time of the asset or in any other manner. It should not be recognized as an expenditure by charging it to Profit and loss account. Because any expenditure which is incurred gives a cash inflows for more than one year should be recognized as a Capital asset and the value of that asset if it is a intangible should be amortized and charged to Profit and loss account. If the same expenditure has been charged wholly to the Profit and loss account without amortizing the value of that Intangible asset then the amount of balance of profit will be decreased to the amount of difference between Value of the Asset shown as expenses and actual amortization expenses.

At the same time if the company had always expensed the cost of capital asset to the Profit and loss account without amortizing the value of the expenses, then expenses will be raised and profit will be reduced by that amount.

For the given problem:-

Actual amount of Amortization = HUF 6,745 millions

But Total value which was shown as expense = HUF 7,325 millions

Difference between Amortization and total value of asset wrongly charged to expenses = HUF 580 millions

Therefore the profit and loss account is excess show or excess expensed by HUF 580 millions and same amount of profit will be decreased or the amount of loss may be increased if the Profit and loss account all ready shows loss account.