Software

ASC 985 provides incremental industry-specific guidance for computer software to be sold, leased, or otherwise marketed, either as a separate product or as part of a product or process; entities in scope must still apply all other applicable GAAP (985-10-15-1). The Overall Subtopic (985-10) sets the scope umbrella and carves out internal-use software (Subtopic 350-40) and arrangements requiring significant production, modification, or customization of software (Topic 606 and Subtopic 340-40) (985-10-15-3). The core of the Topic is 985-20, which makes technological feasibility the dividing line: costs incurred to establish it are R&D expensed as incurred (985-20-25-1), while costs of producing product masters thereafter are capitalized (985-20-25-3) until the product is available for general release (985-20-25-6). Capitalized costs are then amortized product-by-product at the greater of the revenue-ratio or straight-line amount (985-20-35-1) and written down to net realizable value at each balance sheet date, with write-downs never restored (985-20-35-4).

Subtopics

1. 10Overall8 ¶

   ASC 985-10 is the Overall subtopic of the Software Topic, which sets the scope umbrella for the industry-specific software guidance (costs of software to be sold, leased, or marketed; inventory; intangibles—goodwill and other; provision for losses; cost of sales and services; and research and development). The Topic provides only incremental industry-specific guidance—entities within its scope must also apply all other applicable GAAP (985-10-15-1). It applies to all entities and to computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process (985-10-15-2 through 15-3).

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2. 20Costs of Software to Be Sold, Leased, or Marketed63 ¶

   ASC 985-20 governs the accounting for costs of computer software to be sold, leased, or otherwise marketed, whether internally developed or purchased. All costs incurred to establish technological feasibility are research and development expensed as incurred (985-20-25-1); costs of producing product masters after technological feasibility is established are capitalized (985-20-25-3) and capitalization ceases when the product is available for general release (985-20-25-6). Capitalized amounts are amortized product-by-product at the greater of the revenue-ratio or straight-line amount (985-20-35-1) and are written down to net realizable value at each balance sheet date (985-20-35-4).

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