Lemon Inc. is engaged in developing computer software for various industries. Most of the computer

programmers are involved in developmental work designed to produce software that will perform fairly

specific tasks. Extensive testing of the working model is performed before it is released to production

for preparation of masters and further testing. As a result of careful preparation, Lemon Inc. has

produced several products that have been very successful in the market place. The following costs

incurred in 2019 and 2020 are related to a POS system created for restaurants for automated

inventory tracking, table and order management, employee timesheet and payroll, marketing and

loyalty programs, easy menu set-up among others:

Salaries and wages of programmers doing research incurred in 2019 P845,000

Professional fees paid to outside consultants assisting in various

research activities 2019 and 2020

280,000

Application of research findings including expenses related to the project

to complete the detailed program design (cost to establish technical

feasibility of the computer software) in late 2019

313,000

Expenses related to the project after the completion of the detailed

program design (after technological feasibility has been established) in

early 2020 but before software is available for production (e.g. cost of

coding and testing the product master)

330,000

Engineering follow-through during the early stage of the software

commercial production

42,000

Other production costs to prepare the software for sale in 2020 (e.g.

cost of duplicating the product master)

223,000

Additional data for 2020:

Sales of products for the year P2,000,000

Portion of goods available for sale sold during year 60%

Based on the above and the result of your audit, determine the following:

1. Total amount related to the development of computer software that should be expense when

incurred:

2. Amount to be capitalized as software development cost subject to amortization

3. Cost of sales in 2020 assuming that the computer software will benefit the company for 3 years,

after which a more superior software would have been created rendering the developed software

obsolete.