Question

Jackson Ltd is developing computer software for use in its courier delivery service business. So

far the company had spent $50 000 but the software is still unfinished and not expected to be
finished in time for the preparation of the reports. As a result, the company had to purchase a
computer package amounting to $100 000 to finalise its accounts. There is no further use for the
unfinished software as it is expected that the purchased computer package could be used by the
entity for another 10 years. Which accounting treatment would be consistent with the
framework?
ion
34
Finish
Select one
O a Recognise an asset of $100 000 and expense of S50 000.
Time
O b. Recognise an asset of $150 000
O c Recognise an expense of $150 000
od Recognise an asset of 550 000 and expense of S100 000.

Answer 1

Jackson Ltd

Software Development ($50,000) and Purchase ($100,000):

The accounting treatment consistent with the framework is to:

a. Recognise an asset of $100 000 and expense of $50 000.

Step-by-step explanation:

The development cost of the Software which is abandoned cannot be capitalized. Software development cost can only be capitalized after testing for usability. Otherwise, Software development costs are expensed as they are incurred. On the other hand, the purchased Software can be recognized as a long-term asset, Plant, Property, and Equipment as it will be in use for more than 2 years.