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Can someone answer each question specifically. What FASB codification

Resolved Question:

Can someone answer each question specifically. What FASB codification would address each question.

A company develops computer software.

1 - When can the development costs be capitalized?

2 - When must that capitalization be stopped?
Submitted: 2 years ago.
Category: Business and Finance Homework
Expert:  Steven, M.Acc. replied 2 years ago.
Hi there,

Good question, although it is a little vague. For example, does the company develop software for internal use or to sell, lease, or market?

Since it's most likely the latter:

"All costs incurred to establish the technological feasibility of a computer software product to be sold, leased, or otherwise marketed are research and development costs. Those costs shall be charged to expense when incurred as required by Subtopic 730-10." (FASB ASC 985-20-25-1)

However, then, to answer (1):

"Costs of producing product masters incurred subsequent to establishing technological feasibility shall be capitalized. Those costs include coding and testing performed subsequent to establishing technological feasibility." (FASB ASC 985-20-25-3)

"Software production costs for computer software that is to be used as an integral part of a product or process shall not be capitalized until both of the following conditions have been met: (a) Technological feasibility has been established for the software. (b) All research and development activities for the other components of the product or process have been completed." (FASB ASC 985-20-25-4)

"An entity may capitalize an allocated amount of indirect costs, such as overhead related to programmers and the facilities they occupy. However, an allocation of general and administrative expenses is not appropriate because those costs relate to the period in which they are incurred." (FASB ASC 985-20-25-5)

Then, to answer (2):

"Capitalization of computer software costs shall cease when the product is available for general release to customers. Costs of maintenance and customer support shall be charged to expense when related revenue is recognized or when those costs are incurred, whichever occurs first." (FASB ASC 985-20-25-6)

Please let me know if you need additional help!
Steven, M.Acc., Instructor
Satisfied Customers: 718
Experience: Instructor and accountant. Master's degree in Accounting.
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