[shawnl112]

On January 1, Year 1, a company capitalized $100,000 of costs for software that is to be sold. The company amortizes the software costs on a straight-line basis over five years. The carrying value of the software costs on January 1, Year 3, was $60,000. As of December 31, Year 3, the estimated future gross revenue to be generated from the sale of the software is $23,000 and the estimated future costs of disposing of the software is $8,000. What amount should the company expense related to the software costs costs for the year ended December 31, Year 3?

a. $20,000
b. $37,000
c. $18,400
d. $45,000

Choice is D is correct.

1. 20,000 in amortization (10,000 cost amortized over 5 years)
2. 25,000 in impairment loss (carrying value of 40,000 at the end of year 3 versus a fair value of 15,000. The fair value is the estimated future gross revenue of $23,000 less the disposal cost of $8,000)

How did we come up with the carrying value of 40,000?

[Anonymous]

With the 5-year SL amortization of $20,000 per annum, the following are the CV at year-end:
1/1/Y1 100,000
12/31/Y1 80,000
12/31/Y2 60,000
12/31/Y3 40,000

[Author]

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