ASC 705-985
Software
705 Cost of Sales and Services
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ASC 705-985 is a "links only" subtopic that points to the authoritative guidance elsewhere in the Codification on cost of sales and services for computer software. Its content is that amortization of capitalized software development costs for products marketed to others is charged to cost of sales or a similar expense category (per 985-20-45-1), while duplication/packaging costs are inventory costs under 985-330 and costs to keep software current with hardware revisions are addressed in 985-20-55-11 through 55-12.
Key points (4)
- 705-985-05-1 states this Subtopic only provides links to guidance on costs of sales and services related to computer software; it contains no independent recognition or measurement rules.
- 705-985-25-1 cross-references 985-20-45-1: amortization of capitalized costs to develop software marketed to others is charged to cost of sales or a similar expense category, not to operating expense lines like R&D or SG&A.
- 705-985-25-2 directs preparers to Subtopic 985-330 for costs of duplicating software, documentation, and training materials from product masters and for physically packaging the product for distribution (inventory costs).
- 705-985-25-3 directs preparers to paragraphs 985-20-55-11 through 55-12 for the treatment of costs incurred to keep software current with hardware revisions.
For students. Remember this subtopic exists mainly as a signpost — the real rules live in 985-20 and 985-330. The common mistake is classifying amortization of capitalized software development costs as an operating expense or R&D; for software marketed to others it belongs in cost of sales.
Machine-generated study aid for ASC 705-985. Check the source paragraphs below.
705-985-00Status
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705-985-05Overview and Background
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705-985-25Recognition
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Amortization of Capitalized Software Development Costs
Cost of Duplicating Software, Documentation, Training Materials, and Packaging
Costs to Keep Software Current with Hardware Revisions
705-985-S25RecognitionSEC
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Film and Software Costs Associated with Developing Entertainment and Educational Software Products
705-985-S99SEC MaterialsSEC
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SEC Staff Guidance
- The SEC staff has become aware of diversity in the application of generally accepted accounting principles to exploitation, film, and other software development costs associated with EE products.
- Still other registrants, principally film production companies, are capitalizing all costs relating to the development of EE products as film cost inventory.
- The SEC staff views stated here are not intended to apply to costs incurred to produce computer-generated special effects and images used in products that are exhibited in theaters or licensed to television stations because those costs are addressed by Topic 926.
- Topic 985 establishes standards of financial accounting and reporting for the costs of all computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process, whether internally developed and produced or purchased.
- The SEC staff believes that EE products that are sold, leased, or otherwise marketed are subject to the accounting requirements of Topic 985.
- The SEC staff does not believe that other standards of financial accounting and reporting or that industry practice are acceptable alternatives to those requirements.