A company develops computer software. When can the development costs be capitalized?
When must that capitalization be stopped?
Using Codification write a brief summary of your finding in a memo format Also include your Codification research references and notes (cut and paste from Codification) and attach these to the memo; they should NOT be within the body of the memo. Your research should clearly reflect the topic, subtopic, section, subsection and paragraph which supports your answer.
There are three phases of development costs for software: (1) before technological feasibility, (2) after technological feasibility but before available for general release to customers, and (3) general release to customers. Each phase has different treatment of software costs.
For the first phase, before technological feasibility, all costs must be expenses when incurred (985-20-25-1). For the second phase, after technological feasibility but before available to customers, software costs shall be capitalized, including coding and testing, and indirect costs of the programmers and facilities they occupy. The costs may not include general overhead. As soon as the software is available for sale (general release to customers), the capitalization stops and the costs are amortized over their estimated life.
Technological feasibility means that all the planning, designing, coding and testing needed to establish that the product meets it design specifications including the functions, features and technological requirements. In other words, the program is written, the working model is complete, the functions are tested and it works as designed!
Costs after the software is available for sale shall be either cost of goods sold (amortization of capitalized costs and costs of production) or period costs (maintenance and customer support).
(see attached for better format)?
Your tutorial is 789 words which includes four paragraphs summarizing the three phases for software costs treatment and cut and pasted applicable sections from the FASB codification research database.