Reference no: EM132944108

Question - On January 1, 2018 Karen Company purchased a software package for the operation of its production equipment for Php 600,000 including Php 50,000 refundable purchase taxes. The purchase price was funded by incurring a loan of Php 605,000 (including loan origination fees of Php 5,000). The loan is secured against the software license. In January 2018, Karen Company incurred the following cost in the customization of its software so that it is more suited to its operations:

Labor - Php 120,000

Depreciation of plant and equipment used to perform the modifications - Php 15,000.

In January 2018, Karen Company production staffs were trained in how to operate the new software that includes the following:

Cost of an expert external instructor - Php 7,000

Labor - Php 3,000

In February 2018, Karen Company production team tested the software and its information technology team made further modifications necessary to get the new software to function as intended by management. The following costs were incurred in the testing phase:

Material, net of Php 3,000 recovered from the sale of the scrapped output - Php 21,000

Labor - Php 11,000

Depreciation of plant and equipment while it was used to perform the modifications - Php 5,000

The new software was ready for use on March 1, 2018. However, because of low initial order levels, the entity incurred a loss of Php 23,000 on operating software. What is the cost of the software at initial recognition?