Internal-Use Software, ASC 350

Accounting Rules about Software
asc 350-40: Internal-Use Software
–> AICPA SOP 98-1
–> “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”

asc 985-20: Costs of Software to Be Sold, Leased, or Marketed
–> SFAS 86, August 1985
–> “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed”

asc 985-605: Software Revenue Recognition
–> AICPA SOP 97-2
–> “Software Revenue Recognition”

Accounting for the Costs of Software for Internal Use
asc 350-40 based on AICPA SOP 98-1

Three stages to develop software
1. Preliminary project stage
2. Application development stage
3. Post-implementation/operation stage

Preliminary project stage
–> Costs are expensed as incurred

Application development stage
–> Costs to develop internal-use software
–> during the application development stage
–> are capitalized

Post-implementation/operation stage
–> Costs are expensed as incurred

Upgrades and enhancements to software
–> Costs may be capitalized
–> if “additional functionality” is added

Capitalized software costs
–> are amortized on a “straight line” basis
–> over the estimated useful life
and
–> should be reviewed for impairment

 

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