Tag Archives: asc 985

Costs of software to be sold, leased, or marketed, ASC 985

Accounting Rules about Software
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”

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

Two points on the timeline:
(A) When the technological feasibility is established
(B) When the product is available for general release to customers

Costs of software to be sold
1. Up to (A) –> expensed
2. After (A) up to (B) –> capitalized
3. After (B) –> expense

Costs of purchased software
1. Software that has alternative future use
–> capitalized
2. Software without alternative future use
–> treated same as internal development costs

Capitalized software costs
1. Amortized on a “product-by-product” basis
2. Amortization starts at (B)
3. Amortization amount is the higher of (1) or (2)
(1) straight-line method amortization
(2) amount based on the ratio of current revenue and total expected revenue

Impairment test
1. If (a) is less than (b), (b) is written down to (a)
(a) net realizable value of the product
(b) unamortized balance
2. The difference is recognized as an expense
3. Write-down is not reversed in subsequent periods

 

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Research and Development Costs


Research and Development (R&D) costs are recognized as an expense during the period. Being recognized as an expense means that such costs are not capitalized as an intangible asset.

Costs of computer software
(1) Costs incurred until the technological feasibility is established –> research and development costs –> recognized as an expense
(2) Software production costs incurred after the technological feasibility is established
–>┬ácapitalized as an intangible asset

 

 

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