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The University of Chicago
Booth School of Business
Financial Accounting 20100
Allscripts Healthcare Solutions, Inc.
Software Development Costs
Allscripts Healthcare Solutions, Inc. (Allscripts) is engaged in providing information
technology management software and solutions for healthcare industry. It works with
physician practices, hospitals, and other healthcare providers. Allscripts was founded
in 1986 and is headquartered in Chicago, Illinois.
1. How does Allscripts currently account for its internally developed software products to be
sold? How does it currently account for its internally developed software products to be
used internally?
For products to be sold, they capitalize incurred labor development costs after technological
feasibility is established. For internal use software, they do the same but only after the
preliminary project phase is completed. In both cases, they estimate useful life and
amortize the software over this life.
2. During the year, Allscripts sold some of its assets and the proceeds are included in cash
from “Sale of businesses and other investments, net of cash divested, and distributions
Received.” This sale also included some of Allscripts’ software products that were
included in “Software development costs” assets.
In addition, Allscripts provides the following disclosure related to the software
development costs: “During the year ended December 31, 2021, […] We recorded $31.2
million of non-cash asset impairment charges related to the write-off of capitalized
software due to the asset values exceeding the product’s net realizable value.”
a. What is the gross carrying amount of software products disposed as a part of this
sale?
EB = BB + capitalized costs - dispositions
338,677 = 327,519 + 73,265 - dispositions
Dispositions = 62,107
b. What is the accumulated amortization associated with these products?
EB = BB + capitalized costs - amortization - impairments - dispositions
172,104 = 193,202 + 73,265 - amortization - 31,200 - 62,107
= 1,056
c. What is their net book value?
62,107 - 1,056 = 61,051
3. A number of competitors of Allscripts do not capitalize software development costs. How
would Allscripts’ financial statements for 2021 change if software development costs
were not capitalized?
Ignore the effect of taxes
.
a. What is the effect on net income?
Net income would decrease by 172,104
b. What is the effect on total assets, total liabilities, and total shareholders’ equity?
Total assets would decrease by 172,104; no effect on total liabilities, total
shareholders’ equity would decrease by the same amount
c. What is the effect on total cash flow, cash flow from operations, cash flow from
investing, and cash flow from financing?
CFO would decrease by 338,677; CFI would increase by the same amount; CFF
would not change, so total cash flow would not change
1
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