# ASC 985-20-15: Software — Costs of Software to Be Sold, Leased, or Marketed — 15 Scope and Scope Exceptions Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/985/20/#15-scope-and-scope-exceptions) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:f87a5a3cd6e4e78875b41782cd0e6a1c8e0dc104eedfe4c5e919a2f220683c01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/985/20/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [985-20-15-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:dcb2470e050b04fa786e006a4eaa7ded3bb32ca4abdb124e2a55ec183c17edf2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 985-10-15, with specific transaction qualifications and exceptions noted below. #### Transactions ##### [985-20-15-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:d061e577cbc710544b1aca7a61a69ac94cdd7f26e0782f94001497e23e9e9011 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic applies to the costs, including costs incurred after the date of a business combination or a combination accounted for by a [not-for-profit entity](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans."), of 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. ##### [985-20-15-3](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:de0352774b53f391df0c1e4335ccf22353a3b7a3022b21aca477195b1e9ced86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic does not apply to the following transactions and activities: 1. a Software developed or obtained for internal use (see Subtopic 350-40). 2. b Research and development assets acquired in a business combination, acquired in an [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities."), or recognized by a [joint venture](https://asc.understandingaccounting.org/glossary/j/#joint-venture "An entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a joint venture frequently is to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a joint venture. The ownership of a joint venture seldom changes, and its equity interests usually are not traded publicly. A minority public ownership, however, does not preclude an entity from being a joint venture. As distinguished from a corporate joint venture, a joint venture is not limited to corporate entities.") upon formation. If tangible and intangible assets acquired in those combinations are used in research and development activities, they are recognized and measured at fair value in accordance with Subtopic 805-20. 3. c Arrangements to deliver software or a software system, either alone or together with other products or services, requiring significant production, modification, or customization of software (see the guidance on costs to fulfill a contract in Subtopic 340-40). #### Other Considerations ##### [985-20-15-4](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:9669f8f1c337ad3dfcb9e6cbf82a4046f2692d1f2d256c7b6b2979660b7de542 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As used in this Subtopic, the terms computer software product, software product, and product encompass a computer software program, a group of programs, and a [product enhancement](https://asc.understandingaccounting.org/glossary/p/#product-enhancement "Improvements to an existing product that are intended to extend the life or improve significantly the marketability of the original product. Enhancements normally require a product design and may require a redesign of all or part of the existing product."). #### Software Subject to a Hosting Arrangement ##### [985-20-15-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-5) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:a53fcc663adf9c848a3bf1c1cd48c94265e7167bba2e321f491d0b6b4e501d7f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The software subject to a [hosting arrangement](https://asc.understandingaccounting.org/glossary/h/#hosting-arrangement "In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software; rather, the customer accesses and uses the software on an as-needed basis.") is within the scope of this Subtopic only if both of the following criteria are met: 1. a The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty. 2. b It is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. ##### [985-20-15-6](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-6) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:a1f454206e7f0179fdb6015936a871252aec7268667c13bbc39998ac9f467dab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of criterion (a) in paragraph [985-20-15-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-5), the term _significant penalty_ contains two distinct concepts: 1. a The ability to take delivery of the software without incurring significant cost 2. b The ability to use the software separately without a significant diminution in utility or value. ##### [985-20-15-7](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-7) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:33.445Z to 2026-09-10T02:28:33.445Z Record version: sha256:51e29e71b548124963a9163fd8873be03f5881a5a00eb6afbfee4626fe8f3614 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the software subject to a hosting arrangement never meets the criteria in paragraph [985-20-15-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-5), then the software is utilized in providing services and is not within the scope of this Subtopic and, therefore, the development costs of the software should be accounted for in accordance with Subtopic 350-40 on internal-use software (see also paragraph [985-20-55-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-2)).