Question
Norfolk Ltd has decided to replace the computer software currently used for the companys payroll and general ledger functions. Norfolk Ltd is considering the following
Norfolk Ltd has decided to replace the computer software currently used for the companys payroll and general ledger functions. Norfolk Ltd is considering the following four options to obtain the new computer software:
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Purchase or licence the computer software from another company. The purchased or licenced computer software would require only minimal changes before it could be used by Norfolk Ltd.
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Contract independent programmers or a software company to develop specific software for Norfolk Ltd. Norfolk Ltd would pay the independent contractors or company and own the computer software outright.
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Purchase generic computer software to be incorporated into a project to develop the computer software that meets the needs of Norfolk Ltd. The project would be undertaken by Norfolk Ltds own computer specialists and involve significant work and cost.
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Employ its own computer specialists to write and develop the computer software.
Required
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(a) For each of the four options, explain whether the computer software satisfies the definition of an intangible asset in accordance with AASB 138 Intangible Assets. (2 marks)
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(b) For each option that satisfies the definition of an intangible asset, explain the recognition criteria that would be applied by Norfolk Ltd. (3 marks)
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(c) Explain how any computer software recognised as an intangible asset by Norfolk Ltd would be measured on initial recognition and subsequent to initial recognition and whether the useful life of the computer software would be assessed as finite or indefinite. (1 mark)
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