Question

Computer software purchased for internal use should be?

1) capitalized and amortized over its useful life.
2) capitalized as part of the computer hardware.
3) expensed immediately.

Answer 1

Computer software purchased for internal use should be capitalized and amortized over its useful life.

Step-by-step explanation:

Computer software purchased for internal use should be capitalized and amortized over its useful life.

When software is purchased for internal use, it is considered a capital expenditure rather than an expense that should be immediately expensed. This is because computer software is an intangible asset that provides future benefits to the business over a period of time.

Capitalizing and amortizing the cost of software allows the company to spread out the cost over its useful life, reflecting the economic benefits it provides to the business. This is similar to how other long-term assets, like buildings or machinery, are treated.