Level I CFA: Long Lived Assets Lecture 2 

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Have we been able to locate that?

Expensing does not impact CFI. Under capitalization, the €900 purchase is treated as an investing cash outflow. IFT Support Team

The first point is for all intangible assets except software development The 3 rp point is only for software development

1st points related to intangible assets developed internally for sale; 2nd point relates to intangible assets developed internally for internal use. IFT support team

in denominator, you need to take average of total equity i.e. for Year 1, average of total assets at Time 0 and Time 1. IFT support team

@@IFT-CFA why do we need to take the average ?

@@reecerosario5509 because equity is a balancesheet item but net income is income statement item and balancesheet is always at the end of year but net income is during the year so in order to make them similar you have to take average like we do in inventory turnover ratio i hope you got it

@@abhishekchoudhary6395 thanks! that cleared it up!

shareholders’ equity for a company that capitalises the expenditure will be higher in the early years because the initially higher profits result in initially higher retained earnings IFT support team

just kidding im dumb

Yes because it is taken net of depreciation, i.e. 900 - 300 = 600. IFT Support Team

In simple terms, you're mentioning in the balance sheet the worth of your asset - which decreases by 300 every year because of depreciation. That is why, it's 600 and then 300 and after the 3rd deduction in its value, the asset value of PPE goes down to 0.

Under US GAAP: Software for internal use: All development costs should be capitalized. Software for sale: Costs incurred to develop a software product for sale are expensed until the product’s feasibility is established, and capitalized after the product’s feasibility has been established. Determining feasibility involves judgment. IFT Support Team

@@IFT-CFA I think you are mistaken here, as the text reads: " Costs incurred to develop a software product for sale are expensed under GAAP until the product's feasibility is established and are capitalized thereafter. Similarly, companies expense costs related to the development of software for internal use until it is probable that the project will be completed and that the software will be used as intended. Thereafter, development costs are capitalized." The treatment should be the same as IFRS, and not capitalize the $120,000.

It states, like IFRS, all development costs for internally use intangible assets are capitalized. IFT support team

@@IFT-CFA I think you made a mistake here, the treatment for US GAAP is similar to IFRS in that $30,000 are initially expensed and then the remaining amount after feasibility has been established is capitalized, rather than capitalizing the entire amount. "The treatment of software development costs under US GAAP is similar to the treatment of all costs of internally developed intangible assets under IFRS". Please advise. I think you are trying to explain Example 3 from the curriculum, you would be right except for the way you worded your question here in the video, you forgot to mention that prior to starting the project it had established feasibility, ONLY then would it completely capitalize the entire amount, otherwise treatment is similar to IFRS.