Brief Exercise 127 Monty Ltd decided that it needed to updat

Brief Exercise 12-7 Monty Ltd. decided that it needed to update its computer programs for its supplier relationships. It purchased an off-the-shelf program and modified it internally to link it to Monty\' other programs. The following costs may be relevant to the accounting for the new software: Net carrying amount of old software Purchase price of new software Training costs General and administrative costs Direct cost of in-house programmer\'s time spent on modifying software $1,390 5,760 5,160 3,950 1,750 Prepare journal entry to record the software replacement. (Credit account titles are automatically indented when the amount is entered. Do not indent manually If no entry is required, select \"No entry\" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit Software

Solution

Journal entry to record Software repalcement Account Titles and Explanation Debit Credit Software $7,510.00 Cash $5,760.00 Salaries and Wages $1,750.00 The direct cost incurred till the time the software is put to use are capitalised. The training cost and general/administrative cost are part of Monty ltd routine / running cost , hence not capitalised. Net carrying amount of old software is sunk cost i.e.already incurred , hence not considered while capitalising.