During 2014, Saskatchewan Enterprises Ltd., a private entity, incurred $4.7 million in costs to develop a new software product called Dover. Of this amount, $1.8 million was spent before establishing that the product was technologically and financially feasible. Dover was completed by December 31, 2014, and will he marketed to third parties. Saskatchewan expects a useful life of eight years for this product, with total revenues of $12 million. During 2015, Saskatchewan realized revenues of $2.7 million from sales of Dover.
Instructions
(a) Assuming Saskatchewan reports under ASPE, prepare the journal entries that are required in 2014 to record the above.
(b) Prepare the entry to record amortization at December 31, 2015.
(c) At what amount should the software costs be reported in the December 31, 2015 balance sheet?
(d) Could the net realizable value of this asset at December 31, 2015, affect your answer? Explain how limited-life assets are tested for impairment.
(e) How would your response to (d) change if Saskatchewan Enterprises Ltd. was a public company?