Capitalizing the costs of developing a software program for sale Essay

In order to gain a better understanding of both the software industry and the applicable guidelines for capitalizing software, some outside research into the industry and FASB standards was completed. This research was complied as a part of the risk assessment portion of the audit process (Whittington & Pany, 2012). The issue of capitalizing the costs of developing a software program for sale is a complicated issue. This is due in part to the fact that the nature of technology is constantly changing so clear procedures regulating when to write off a software system vary according to the pace of technological changes within the industry. Therefore, while a company is developing software, they should report the incurred creative costs to a research and development account (Warfield, Weygandt, & Kieso, 2007). Once the software product has reached a point where it is feasibly considered a technological product the costing can be adjusted to begin capitalizing the costs (Warfield, Weygandt, & Kieso). As established in FASB Statement No. 2, any costs incurred in the developing, creating, testing, and so forth of software products will be charged to the research and development expense account; however any adjustments to the software for upgrades and any costs to market the product would not be included in the research and development expense account (Accounting-Financial-Tax.com, 2012). This is because by the point the product is ready to be marketed or needs to be upgraded to meet new technological standards, the feasibility of the product has been established and therefore the product should be capitalized (Account ing-Financial-Tax.com). If however, after meeting the feasibility requirements, there is substantial risk associate... ....com. (2012). Capitalization and amortization of software costs. Retrieved from, http://accounting-financial-tax.com/2009/05/capitalization-and-amortization-of-software-cost/ Accounting For Management. (2011). Return on Shareholder’s investment or net worth ratio. Retrieved from, http://www.accountingformanagement.com/retun_on_share_holders_investment_or_net_worth.htm Kennon, J. (2012). Return on assets (ROA). Retrieved from, http://beginnersinvest.about.com/od/incomestatementanalysis/a/return-on-assets-roa-income-statement.htm Tracy, J. A. (2004). How to read a financial report (6th ed.). Hoboken, NJ: John Wiley & Sons. Warfield, T. D., Weygandt, J. J., & Kieso, D. E. (2007). Intermediate accounting (2nd ed.). Hoboken, NJ: John Wiley & Sons. Whittington, R., & Pany, K. (2012). Principles of auditing and other assurances (18th ed.). New York, NY: McGraw-Hill

Jones Electrical Essay

As we can see from the figures and the information given in the present case, the company is very profitable due to the ambition and well management done by its owner Mr. Jones. In this regard, we can see in â€Å"Table 2 in the spreadsheet†, that the company is taking advantage of the 2% discount offered by suppliers saving around $75,000. 00 per year. We have to pay especial attention to the agreement reached with the former Co-owner of the company, Mr. Verden. This agreement is affecting the cash flow of the company since the interest expenses raises by around $12,000. 0 more per year, this together the financial interest of the Metropolitan’s Bank loan makes that the company needs a larger amount to finance its debts, that by the way regarding the agreement with Verden should not being paid by the company but by Jones personal income since this agreement was not reached between the company and Verden but between Verden and Jones. Furthermore, we are assuming that the company is paying this agreement since the Metropolitan’s interest rate if not will be of 12,45% per year which it seems to be very high for a bank of this kind. See Table 3 On the other hand, we have see that other and perhaps the most important factor making the company running out of cash is the fact that Jones uses to pay the invoices within 10 days so he can take advantage of the 2% discount instead of waiting the net payment due in 30 days while his accounts receivables are paid in average every 42 days. It is not necessary to explain what paying around hundred suppliers every 10 days represent to cash flows if the company is receiving payments every 42 days, this means that the company pays 4 times at 1 time receiving. This is, for sure, the main reason why the company is losing liquidity and need to borrow money to banks. See Table 5. Furthermore, we can see that the average rotation on accounts payables is 22 days as we can see from Table 10, this breaks the balance between the account receivables and accounts payables, this means that the company need to finance the difference (in this case 20 days approx. ) of working capital and the only way to finance it is through the company’s operations, by shareholders or with external resources which in the present case is through a bank loan. It would be also interesting to see what it the company’s financing policy on accounts receivables, this means what discount the company gives to its buyers and compare it with the discounts it receives from suppliers. Finally in order to overcome this situation the company need to review its financing policy and reduce the finance it gives to its clients so the rotation in accounts receivables period approaches to the rotation on accounts payables and thus correct the difference of approximately 20 days that is making the company look for further financing in external sources. . – Is Jones’s estimated that a $350,000. 00 line of credit is sufficient for 2007 accurate? From my point of view it seems to be accurate for the year of 2007. This answer is based of the calculation on working capital (see Table 8) and even stressing the methods used to calculate it, such as through the net operating working capital, which takes only into account the ways that the company has to generate cash and it most liquid debts, it means inventory, account receivables and account payables, we found that the figures were much better. See Table 11) On the other hand, if we take a look to the liquidity ratio (see Table 9) we found that the company’s ratio is above minimum relation required which is 1:1, this means that the company is producing enough cash to pay its debts. Nevertheless, as we said before, there a disparity in the financing policy of the company regarding the recovery period (account receivables) and the rotation on payables accounts that makes that the company requires external financing despite of having excellent numbers on the paper. Finally, I consider that the new credit line will be enough to pay the former credit with Metropolitan bank and there will still be $100 thousands dollars available that can be used by the company along the year since the restriction imposed by the bank are meet as we can see in Table 4 besides the company will be receiving payments during the year that will allow it to cover its debts and take advantage of the supplier discounts. Nevertheless, I insist in the fact that the company should revise its financing policy and the rotation of account receivables. . – What will happen to Jones’s financing needs beyond 2007? The financial needs of Jones Electrical will increase unless they change their policy on financing buyers while paying faster to their suppliers. This in deed is what is making that the company requires additional founds. On the other hand, the company has been growing constantly. In deed, according to the net income estimation for 2007 (see Table 7) the com pany increases its profits $25 thousand dollars more than the previous year. This is an evidence of how the company is been management and of its willing to grow year after year. Nevertheless, the first quarter of 2007 the working capital only has increased by $7 thousand dollars, which is the difference between the current assets and current liabilities but the importance of this is that according to the rotation on receivables and payable accounts, shown in Table 5 and 10, leads us to the conclusion that the company will have to pay its suppliers twice before it enters a single dime from its buyers. This clearly is the only reason and explanation to the question arose at the beginning of this analysis: â€Å"Why this profitable company needs a bank loan? † and the answer is found in tables 5 and 10, which is traduced into â€Å"an inadequate financing policy regarding receivables and payables accounts†. Finally, as a conclusion we can say that the company will still be needing more and more external resources to finance its buyers purchases due a inadequate financing policy that provoke unbalance in the requirements of working capital.

O great god-king Xerxes Essay

O great god-king Xerxes, I have heard that you are planning to launch a full-scale invasion of the Greek nations following on the steps of your father, Darius. I come here before you to attempt to dissuade you of your plans for Greece. As I am once a prominent citizen of one of the many city-states in the nation, it would do you well to listen to my advice as it contains extensive knowledge of what you are about to face if you push through with your plans. O King, barely ten years ago, your father Darius launched a similar invasion against the Greek city-states in retaliation to the Athenians’ aiding the Ionians in their revolt against his rule. Although it had been initially successful, the invasion was ultimately put to an end by his defeat during the Battle of Marathon. It could be worth noting that, despite the battle being a victory, it was a desperate attack by the Athenian army that caused the defeat of your father’s armed forces. Sparta, perhaps the state with the most powerful military in all of Greece, was absent from the battle and even then the Greeks scored a victory. Each city-state in Greece acts independently from each other. They are each governed by their respective rulers and are not influenced by the affairs of the other city-states. However, it is not impossible for each of them to call for aid to one another as evidenced by the Ionian call for aid during the previous war. Sartus was taken thanks to the aid provided by Athens, who had the major contribution in the allied army, and by Eretria. Sparta had chosen delay sending military aid as it had decided a full moon needed to pass before they do anything and were thus absent from the Battle of Marathon, where your father’s army was defeated utterly. Had Sparta’s forces been present, its superior military might compared to Athens would likely contribute to utter decimation of the Persian forces under your father’s command. However, even then, your father’s soldiers lost under the Greeks. If you attack now, O King, you risk provoking an even greater alliance that can now include Sparta, which is your most formidable enemy on the plains of Greece. The Spartans are a race that places utmost emphasis on military training and raising superior soldiers that have been tested in war. Furthermore, the Spartans will never participate and are not interested in any alliance that will not mean leadership to them. They can be a vain and arrogant nation but with the strength to back their vanity up. If you threaten the entire Greek country now, your Majesty, the major powers of the nation will definitely ally themselves with Sparta at the helm. With Spartan tactics and warriors at the vanguard, your army – no matter how great – will run into serious opposition which can result into an even greater demise than what has happened to your father’s forces in Marathon. As could be expected from any nation, the Greeks have devised battle tactics that are best suited to their terrain. They know their land; you can expect them to take advantage of that and lure your forces into a disadvantage in battle. With a possible alliance under Spartan leadership, the Greek can have a tactical and strategic advantage even if your army is greater in number. O Wise King, great wisdom it would be not to rely on the greater numbers of your armed host. The Greeks, especially the Spartans, will not be easily daunted. They have tactics that can be quite effective when employed in terrain which they know well. For example, your father Darius in Marathon faced a tactic called the phalanx. By definition, a Greek battle line deployed in a phalanx means there is equal strength in all sides of the battle formation. However, in Marathon, the Greek commander faced superior numbers but was able to modify the phalanx into an effective variant: he strengthened the wings of his battle formation while weakening the center. At first you would think that the Greeks were committing suicide and, indeed, the Greeks seemed to be at the point of desperation. However, stronger wings meant that the Greeks managed to hold off the wings of your father’s formations, holding them back and disabling them from reinforcing the center of King Darius’ battle lines. Thus, it was then that the Persian armies were surrounded and routed by the Greek army in Marathon. The results of the battle were horrific. Your father lost a sizable portion of his soldiers, sixty times more than what the Greeks lost in that same battle. A second Marathon is not the only thing that you should worry about in the conduct of battle in this planned invasion. A worse battle awaits your forces if you push through. In Greece, there is a place which we call the â€Å"Hot Gates† or Thermopylae. This place is a narrow pass bordered by a sheer cliff wall on one side, and the sea on the other side. This is a battleground ideal for the phalanx. In such a narrow pass, the phalanx will serve as a wedge that will drive through your attacking forces. The Greeks need only to strengthen their front lines with the rear guard merely pushing the front soldiers forward. In here, the superior numbers of your great army will definitely count for nothing. The Greeks, especially the Spartans and the Athenians, are aware of this pass; they will definitely use this to their advantage to hold off your army while a greater force amasses for retaliation. A Spartan-led phalanx could be as devastating as any phalanx, which had been proven by the Athenian tactics in Marathon. As you could see, Great King Xerxes, the sheer size of your army is both your strength and your liability. To support such a large host, you need a sizable navy to carry supplies back and forth. Your navy will be stretched thin supporting your great army; it will also have to endure against whatever naval counterattacks and offensives that the Greeks may launch against you. You could face a naval situation similar to Thermopylae in Salamis. It is a narrow channel, one which can reduce your navy into a bottleneck and reduce their effectiveness. The Greeks can pick your ships off one by one even if they may be smaller in size. Consider my wisdom in this matter, King Xerxes. I daresay that, even if you hold the greater number of forces, you would find it hard to manage them effectively at smaller levels. The Greeks, my former countrymen, are geniuses both in scholarship and in battle; your father Darius learnt that the hard way in the fields of Marathon under the Athenians alone. With a possible pan-Greek alliance – with the mighty Spartans leading – your forces face yet another humiliating defeat similar to Marathon, only this time you will be facing the combined might of all the city-states of Greece. Abandon this plan now, before this results to destruction of your mighty host. Sources: Wheeler, Kevin. (2001). â€Å"Ancient Greek Battles of Marathon, Thermopylae, Artemisium and Salamis. † Retrieved November 30, 2008, from Ancient World Battles website: http://www. geocities. com/caesarkevin/battles/Greekbattles1. html Lendering, Jona. (2005). â€Å"Phalanx and Hoplites. † Retrieved November 30, 2008 from Livius. org website: http://www. livius. org/pha-phd/phalanx/phalanx. html Lopez, Vincent. (2008) â€Å"Shock Tactics on the Ancient Battlefield. † Retrieved November 30, 2008 from Armchair General website: http://www. armchairgeneral. com/shock-tactics-on-the-ancient-battlefield. htm/5 Stewart, Michael. â€Å"People, Places & Things: Xerxes I†, Greek Mythology: From the Iliad to the Fall of the Last Tyrant. Retrieved November 30, 2008 from Messagenet website: http://messagenet. com/myths/ppt/Xerxes_I_1. html Freedom44. (2004). â€Å"The First Persian War – Greek Wars. † Retrieved from Free Republic website: http://freerepublic. com/focus/f-news/1196577/posts