985 20 Costs Of Software To Be Sold

Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (Issued 8/85)SummaryThis Statement specifies the accounting for the costs of computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process. It applies to computer software developed internally and to purchased software. This FASB project was undertaken in response to an AICPA Issues Paper, 'Accounting for Costs of Software for Sale or Lease,' and an accounting moratorium imposed by the Securities and Exchange Commission precluding changes in accounting policies related to computer software costs pending FASB action.This Statement specifies that costs incurred internally in creating a computer software product shall be charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs shall be capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.This Statement is applicable, on a prospective basis, for financial statements for fiscal years beginning after December 15, 1985. The conclusions reached in this Statement change the predominant practice of expensing all costs of developing and producing a computer software product.

• 985 20 Costs Of Software To Be Sold Free

985 20 Costs Of Software To Be Sold Free

SaaS Companies: What Costs Should Be Capitalized?.1.SaaSCompaniesWhat CostsShould BeCapitalized?IntroductionAn increasing number of new and established software companies are be-coming more “sassy,” delivering Software as a Service (“SaaS”) and re-placing the software licensing model. (The benefits to the SaaS customerare obvious—reduced capital expenditures and IT support costs.) AlthoughSaaS companies are increasingly taking advantage of the new multiple ele-ment revenue rules1 to accelerate non-subscription (e.g.

Professional ser-vices) revenues, there seems to be diversity in practice among the pub-lic SaaS companies when it comes to capitalizing expenses. ArmaninoMcKenna conducted a survey of 47 public SaaS companies to examinetheir accounting policies for certain expenses. The results showed 70% ofthose SaaS companies are capitalizing expenses - the two most commonexpenses capitalized are software development expenses and sales com-missions. To understand the diversity in capitalization practices, we exam-ined the rules for capitalizing these and other SaaS expenses.1 FASB ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements 1 SaaS Companies: What Costs Should Be Capitalized?.SaaS Expenditures/Capitalization CostsThe table below lists the more common SaaS expenditures and our interpretation of the rules on capital-izing or expensing such costs. It is not meant to be all inclusive but highlights the more common SaaSexpenditures associated with the development and maintenance of software and/or website applications.