Satyam Company has created a new software application for PCs. Its costs during research and development were $500,000. Its costs after the working program was developed were $350,000. Although the company’s copyright may be amortized over 40 years, management believes that the product will be viable for only 5 years. How should the costs be accounted for? At what value will the software appear on the balance sheet after 1 year?
As per IAS 38, Intangible assets meeting the relevant recognition criteria are initially measured at cost, Intangible assets has has a finite useful life, you should amortize it over that useful life.In other words we could say that you can measured at cost or using the revaluation model, and amortised on a systematic basis over their useful lives
In the prasent case we have been given that ,costs during research and development were $500,000. Its costs after the working program was developed were $350,000.
In the question it is given that management believes that the product will be viable for only 5 years so amortise these expses by considering useful life for 5 years instead of 40 years
| Particular | Amount in $ |
| Preliminary Expenses | |
| research and development | 500000 |
| Add:Post-implementation Expeses | |
| costs after the working program was developed |
350,000 |
| Total | 850,000 |
| product will be viable for | 5 Year |
| Amortiosation per year =850,000/5 year |
170000 |
| Value After 1 year =850,000-170,000 |
680,000 |
