The Elegant Software Company recently completed the development and testing of a new software program that provides the ability to transfer data from among a variety of operating systems. The company believes this product will be quite successful and capitalized all of the costs of designing, developing, coding, and testing the software. These costs will be amortized over the expected useful life of the software on a straight-line basis.
Required:
1. Was Elegant correct in its treatment of the software development costs? Why?
2. Explain the appropriate method for determining the amount of periodic amortization for any capitalized software development costs.