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Illini Imaging recorded capitalized software development costs of $1,400,000 at the end of 2021. The 2022 revenues from the sale of the new software were $4,000,000, and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. Amortization of the software development costs for the year 2022 would be:

User Mtflud
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Answer:

amortization expense year 2022 = $560,000

Step-by-step explanation:

There are two in which you can amortize software development costs, one is straight line method (4 years) and the other is similar to the depletion amortization.

In this case, I believe that depletion amortization is better, since most of the revenues will be generated during the first year or years, but the useful life is much longer.

total expected revenue = $10,000,000

total R&D capitalized costs = $1,400,000

you should amortize $1,400,000 / $10,000,000 = $0.14 per every $1| of revenue:

amortization expense year 2022 = $0.14 x $4,000,000 = $560,000

User Niccolo
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