Both Microsoft and Google report in their Form 10-Ks that they basically expense all software costs when

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Both Microsoft and Google report in their Form 10-Ks that they basically expense all software costs when incurred. Why do you think they may choose to do this, rather than to try to record some of their software costs as assets?

(Hint—Look at application question A11. In this question, two different companies use different policies for accounting for software costs. One immediately expenses its costs, but the other amortizes them over three years. If you work through the question, you will see that the company that immediately expenses its costs has higher costs in its early years, while it is growing; the same costs in a period of stability; and lower costs in the later, declining years.

Also, because it had lower income in the early years, the company that immediately recognized its software costs as expense shows higher return on equity in later years.)

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