Accounting Rules for Software Capitalization

For a new capex software that is being implemented (such as a new website, mobile app, CRM, accounting system, etc), what are the accounting rules for what project costs can be capitalized? There are generally several components to these projects, including an initial assessment before the project begins, the project work (design & build), consulting costs to build the asset, training, and deployment. Does anyone know which of these costs are considered operating expenses as part of the project? It seems that the initial assessment wouldn't be capitalizable, and perhaps also the training, but the other costs all are related to building the asset so they seem to be capital expenses to me. Any help/guidance would be greatly appreciated.

Answers

Rebecca LeClaire CFO • May 6, 2016

Most costs incurred in the acquisition of a software (large enough that you want to capitalize it), can be included in the capitalization. The question would be do you want to capitalize all of those costs. Depending on the financial situation of your company, and the type of company you are, you may decide to just expense any upfront costs, or the training, or any specific part of it. That part of it really comes down to a business decision on how to handle. These decisions do have tax implications so you have to do some analysis if this a significant purchase. Just be sure you are deliberate and consistent in your treatment of capitalizing assets.

Jeff McGlaughlin Corporate Controller • May 6, 2016

AICPA Statement of Position 98-1:

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176156442651&acceptedDisclaimer=true

Katherine Simmonds Agent • May 12, 2016

You might want to obtain a new GAAP Guide, they are always helpful. Training under any circumstances is never capitalizable. If there are any hosting costs, these are period expenses and are not capitalizable. Here is a weblink that could be useful. Getting a handle on the rules requires obtaining the ASC guidance and probably a GAAP Guide. If you are a controller, then you can probably get your company to pay for one.

https://web.stanford.edu/group/fms/fingate/staff/capitalequip/capital_software.html#background

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Accounting Rules for Software Capitalization

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