Incredimail 2011 Annual Report Download - page 103

PERION NETWORK LTD. AND ITS SUBSIDIARIES
(Formerly: Incredimail Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:
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SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Deferred revenues include upfront payments received from customers, for whom revenues have not yet been recognized.
j.
Cost of revenues:
Cost of revenues consists primarily of salaries and related expenses, license fees, amortization of acquired technology, amortization of
capitalized research and development costs and payments for content and server maintenance, all related to its product revenues and
communicating with its users. The direct cost relating to search and advertising revenues is immaterial.
k.
Research and development costs:
Research and development costs incurred in the process of software production before establishment of technological feasibility, are charged to
expenses as incurred. Costs of the production of a product master incurred subsequent to the establishment of technological feasibility are
capitalized according to the principles set forth in ASC 985-20, "Software -
Costs of Software to Be Sold, Leased, or Marketed". Based on the
Company's product development process, technological feasibility is established upon completion of the detailed program design ("DPD") (the
DPD of a computer software product that takes product function, feature, and technical requirements to their most detailed, logical form and is
ready for coding).
Costs incurred by the Company between completion of the DPD and the point at which the product is ready for general release, are capitalized
unless considered immaterial.
Capitalized software development costs are amortized commencing with general product release by the straight-
line method over the estimated
useful life of the software product.
l.
Income taxes:
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This Statement prescribes the use of the liability
method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to
reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
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