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Section 3330: Accounting for Software
1. Software revenue
985-605: Software Revenue Recognition
--> AICPA SOP 97-2, Software Revenue Recognition
2. Costs of internal-use software
350-40: Internal-Use Software
--> AICPA SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use
3. Costs of software to be sold
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
4. Two points on the timeline:
(A) When the technological feasibility is established
(B) When the product is available for general release to customers
5. Costs of software to be sold
(1) Up to (A) --> expensed
(2) After (A) up to (B) --> capitalized
(3) After (B) --> expense
6. Costs of purchased software
(1) Software that has alternative future use
--> capitalized
(2) Software without alternative future use
--> treated same as internal development costs
7. Capitalized software costs
(1) Amortized on a "product-by-product" basis
(2) Amortization starts at (B)
(3) Amortization amount is the higher of (a) or (b)
(a) straight-line method amortization
(b) amount based on the ratio of current revenue and total expected revenue
8. 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
9. Costs of internal-use software
Rules of asc 350-40 based on AICPA SOP 98-1
(1) Three stages to develop software
(a) Preliminary project stage
(b) Application development stage
(c) Post-implementation/operation stage
(2) Preliminary project stage
--> Costs are expensed as incurred
(3) Application development stage
--> Costs to develop internal-use software
--> during the application development stage
--> are capitalized
(4) Post-implementation/operation stage
--> Costs are expensed as incurred
(5) Upgrades and enhancements to software
--> Costs may be capitalized
--> if "additional functionality" is added
(6) 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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