During the current year, Pitt Company incurred costs to develop and produce a low-risk computer software product. Completion of detailed program design: 1,300,000 Costs incurred for coding and testing to establish technological feasibility: 1,000,000 Other coding costs after establishment of technological feasibility: 2,400,000 Other testing costs after establishment of technological feasibility: 2,000,000 Costs of producing product masters for training materials: 1,500,000 Duplication of computer software and training materials from product masters: 2,500,000 Packaging product: 900,000 I. The cost to be expensed should be reported at P2,300,000. II. The capitalizable software cost should be reported at P5,400,000. III. The inventory should be reported at P3,400,000. A. Statements I, II and III are true B. Statements I, II and III are not true C. Only statements I and II are true D. Only statements I and III are true
Answer (1)
To determine which statements are true, we need to analyze the costs involved based on software development accounting principles:
Costs to be Expensed:
Completion of detailed program design: P1,300,000
Costs incurred for coding and testing to establish technological feasibility: P1,000,000
These costs are incurred before technological feasibility is established and should be expensed.
Total cost to be expensed = P1,300,000 + P1,000,000 = P2,300,000
Capitalizable Software Costs:
Other coding costs after establishment of technological feasibility: P2,400,000
Other testing costs after establishment of technological feasibility: P2,000,000
Costs of producing product masters for training materials: P1,000,000
These costs incur after technological feasibility is established and should be capitalized.
Total capitalizable costs = P2,400,000 + P2,000,000 + P1,000,000 = P5,400,000
Inventory Costs:
Duplication of computer software and training materials from product masters: P2,500,000
Packaging product: P900,000
Inventory costs are those that are incurred to physically produce the software or related materials. These should be recorded as inventory until sold.
Total inventory costs = P2,500,000 + P900,000 = P3,400,000
Given this breakdown, we see that:
Statement I: True. The cost to be expensed matches the calculation at P2,300,000.
Statement II: True. The capitalizable software costs match at P5,400,000.
Statement III: True. The inventory costs match at P3,400,000.
Therefore, the correct answer is option A. Statements I, II and III are true.
