I have a business question. Many years ago the company purchased software and it was capitalized. Currently we are adding functionality to the software, we are hiring an outside company to do this, are we able to capitalize those cost?
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Life is often more a question of should we rather than can we.
Generally, if you have capitalised assets you can capitalise additional expenditure on them *if* the additional expenditure in some way enhances the asset and/or extends its useful life. So that's the question to be asking yourself. There's also company policy to bear in mind - is it policy to capitalise further expenditure or just write it off at the time as upkeep? Consistency is important in how you treat things through the accounts.
I see. So you are stating that if we hire an outside firm to add functionality to the software then we can capitalize those cost.
That is because your answer is not an answer.
bklynboy
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Fidget is spot on and you may be able to capitalize. There is guidance around this in GAAP so take a look since not all the effort is capitalized (scoping, testing, manager time, conversion of data is not capitalized) and only the coding and direct time during application stage is capitalized (prelim and post implement stage is not capitalized). Check this link for a summary of what is allowed:
https://www.eisneramper.com/capitalizing-software-tl-blog-1216/
ASC 350-40 is the relevent guidance (its considered internally developed if you are customizing for your needs as opposed to off the shelf and use)
https://www.eisneramper.com/capitalizing-software-tl-blog-1216/
ASC 350-40 is the relevent guidance (its considered internally developed if you are customizing for your needs as opposed to off the shelf and use)
I don't think you are understanding my question. The software was capitalized when it was first installed which was several years ago. I am asking about adding functionality to that software and in order to add the functionally we are hiring an outside company(consultants) to do this, are we able to capitalize those cost by themselves?
bklynboy
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I do understand.
When you add functionality to change the software that falls under ASC 350-40. Doesnt matter if outside or inside resources are used. There are only specific activities that can be capitalized (development stage). Internal means that you changed the software. If you are just buying additional modules and installing that is different (generally just a licensing fee to use it) but not what I believe you stated. Read the guidance first there is a lot of discussion around this topic.
Also, look at your internal policy as most companies capitalize labor (internal or external) spends at a higher threshhold since it is time consuming to track their time to qualify for capitalization.
If you still disagree be more specific what software this is and what you are changing - is it just for your company or is it then being added by the vendor to sell to new clients?
When you add functionality to change the software that falls under ASC 350-40. Doesnt matter if outside or inside resources are used. There are only specific activities that can be capitalized (development stage). Internal means that you changed the software. If you are just buying additional modules and installing that is different (generally just a licensing fee to use it) but not what I believe you stated. Read the guidance first there is a lot of discussion around this topic.
Also, look at your internal policy as most companies capitalize labor (internal or external) spends at a higher threshhold since it is time consuming to track their time to qualify for capitalization.
If you still disagree be more specific what software this is and what you are changing - is it just for your company or is it then being added by the vendor to sell to new clients?