Scs expects a useful life of five years for the software and total revenues of $10,000,000 during that time. during year 2, scs recognized $2,000,000 in revenue, included in the $10,000,000 total revenue estimate. calculate the required amortization for year 2 (hint: calculate using both methods, choose the greater number)

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Business

Daniella Drake

20 August, 12:05

Scs expects a useful life of five years for the software and total revenues of $10,000,000 during that time. during year 2, scs recognized $2,000,000 in revenue, included in the $10,000,000 total revenue estimate. calculate the required amortization for year 2 (hint: calculate using both methods, choose the greater number)

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Mckee · Answer 1

The percentage-of-revenue method is used since it produces the greater amortization of $180,0

Explanation:

Firstly, using the percentage of reve method we have;

Percentage-of-revenue method

$2,000,000. = 20% * $900,000

Percentage of revenue = $180,000

$10,000,000

Secondly, using the straight line method, we have;

Straight-line method

=$900,000 * 1/5 * 9/12

=$900,000 * 0.2*0.75

= $135,000

After using the both method, which is straight line method and percentage of revenue method, we discovered that the percentage of revenue method is used since it produces the greater amortization of $180,000