Incredimail 2012 Annual Report Download - page 106

PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
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.
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, which is generally 3 - 5 years.
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.
The Company accounts for uncertain tax positions in accordance with ASC 740, which contains a two-
step approach for
recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be
taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an
evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or
litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon ultimate settlement.
NOTE 2:
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SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j.
Cost of revenues:
k.
Research and development costs:
l.
Income taxes:
F
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