Assignment
Creative Software is a firm that recently completed the development and testing of a new software program that provides the ability to transfer data to and from a variety of operating systems. The firm believes this product will be quite successful and has capitalized all of the costs of designing, developing, coding, and testing the software. Michael Leon, the President of Creative Software, located at 3200 Tech Avenue, Davie FL 33314 is your client. You are a newly hired staff member of FAU, Inc., an accounting firm located at 777 Glades Road, Boca Raton, FL 33431. Because Michael is unfamiliar with the proper accounting treatment of software costs according to United States Generally Accepted Accounting Principles (US GAAP) he has hired FAU, Inc. to explain the accounting treatments specified by US GAAP. (Adapted & Modified from SST 4th Edition)
Your firm has delegated to you the task of determining the treatment of software costs, and has asked that you prepare a four (4) page typed memo (not handwritten, 1.5 spacing -- not double spaced), including a works cited page (the 4th page of your memo should be designated as the works cited page; use MLA Format for your works cited page) to the client explaining
1. The standards that govern US GAAP treatment of software costs.
2. Whether Creative Software was correct in its treatment of the software development costs and why Creative Software's treatment was correct or incorrect.
3. Explain the appropriate methods for determining the amount of periodic amortization for any capitalized software development costs.
4. Explain how software costs should be presented and disclosed in the financial statements.
In addition, you are to formulate a question to ask the client that would help you determine the different types of software transaction(s) it is involved in, and include that in the conclusion of your memo.
This memo is expected to be professional and informative. Remember the purpose of the memo and the audience that it is addressing.
Follow the proper format for a memo, as presented in May & May, Effective Writing: A Handbook for Accountants. 10th ed. I will allow sub-headings in your memo.