Essay about Case Study: Adventurous Computer Games, Inc.
Part 1. Accounting for the Cost of Software Programs at AdCom Games
Adcom games should allocate all costs from the Product Development Support Center, as well as the project team labor, to the games that are developed. I believe that all costs from the Product Development Support Center (PDSC) should be allocated in order to properly match expenses with revenues. Costs should be allocated on the basis of lines of code written. For example, 16% of all code written pertained to “Secret Agent”. Because 16% of work product went towards this game, 16% of all costs incurred by the PDSC should be allocated to this game as well. Labor costs pertaining to this game should be added to the allocated PDSC …show more content…
As far as the Statement of Cash Flows is concerned, there will not be much of a change. The Statement of Cash Flows will show all of the same inflows and outflows, and will have the same beginning and ending balances of cash. However, the adjustments will be different. For example, a lesser amount of depreciation will be added back to cash, yet more cash will be shown as going to inventory (because depreciation was capitalized). While the adjustments on the Statement of Cash Flows will be different, the net amounts of inflows and outflows will be exactly the same – cash is cash. The ending balance of cash will be the same. Accounting policies will not affect the cash balances of a company.
Part 3. Overall Evaluation and Conclusions
I believe the greatest thing that will be gained from capitalizing expenditures will be that internal managers, company executives, investors, and creditors will be able to better see how much money the company is making on its software. Expensing all costs upfront before revenues are earned will make the software company appear as though they are losing money in the first couple years. This isn’t necessarily the case; the company is simply investing in its