# ASC 985-20-55: Software — Costs of Software to Be Sold, Leased, or Marketed — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/985/20/#55-implementation-guidance-and-illustrations) 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): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:9716779c2b10e55b1cb452c3c24f5df2bdc6bb55c69ac82142d83eb1149715be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 985-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/985/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [985-20-55-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:308d940c449199a8e42f342066ca11d4933735107d17c07a2e56e8b39a4f832e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A software product is most easily defined by describing its necessary qualities. As a product, it is complete and has exchange value. As software, it is a set of programs that interact with each other. A program is further defined as a series of instructions or statements that cause a computer to do work. ##### [985-20-55-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:b8e41c1fd65523ca10b773a517df9385024cadba93c36e096ab164f3506c1a33 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the entity never sells, leases, or licenses the software (that is, the software meets the criteria in paragraph [985-20-15-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-15-5)), then the software is used in providing services and the development costs of the software should be accounted for in accordance with Subtopic 350-40. However, if during such software's development or modification (accounted for in accordance with Subtopic 350-40), the entity develops a substantive plan to sell, lease, or otherwise market the software externally, the development costs of the software should be accounted for in accordance with this Subtopic (985-20). Paragraph [350-40-35-7](https://asc.understandingaccounting.org/asc/350/40/#350-40-35-7) provides guidance if, after the development of internal-use software is completed, an entity decides to market the software. ##### [985-20-55-3](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:5a93f74d3e65578fd40bbc310d6de0ddbe705e6af99d1e3b10b2e728b8b5a2d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The costs of software that is marketed as part of a product or process are included in the scope of this Subtopic. Software is sometimes embedded in a product and sold as part of the product as a whole. Examples are calculators and robots. This type of software is sometimes known as firmware. Also, some services provided to customers would not be possible without software. Time-sharing and service bureaus are two straightforward examples. ##### [985-20-55-4](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:afa102409104c92aea104f520e470476d6e8df419ff51a5e5933658fb8202040 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) specifies the minimum activities an entity should have performed as evidence that technological feasibility has been established, by either inclusion of a [detail program design](https://asc.understandingaccounting.org/glossary/d/#detail-program-design "The detail design of a computer software product that takes product function, feature, and technical requirements to their most detailed, logical form and is ready for coding.") or completion of a [working model](https://asc.understandingaccounting.org/glossary/w/#working-model "An operative version of the computer software product that is completed in the same software language as the product to be ultimately marketed, performs all the major functions planned for the product, and is ready for initial customer testing (usually identified as beta testing)."). However, an entity may need to defer capitalization until after meeting the working model criteria in paragraph [985-20-25-2(b)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2), even though technological feasibility had previously been established by meeting the detail program design criteria in paragraph [985-20-25-2(a)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2). ##### [985-20-55-5](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:3e8aac8f6ad1a27a4fd831bc5b064168c8678a0b0e8037e57f8d201facd01baf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [985-20-25-2(a)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) specifies three criteria relating to the detail program design to be satisfied before capitalization begins. Entities whose software product process fits the description in that paragraph should look to that paragraph for the applicable technological feasibility criteria. However, if the three criteria in that paragraph are not met until a working model is completed, this Subtopic requires capitalization to begin upon completion of the working model and satisfaction of the other criteria in paragraph [985-20-25-2(b)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2). ##### [985-20-55-6](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:969c07e8b96db0148d573f6195bf2f5ebcce2a1356fc713b49888f961ece39e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Management shall not require more stringent criteria than specified in paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) to begin capitalizing software production costs. One of the purposes of this Subtopic is to identify an objective point in the software product process at which research and development activities end and production activities begin. If management were to modify the Subtopic's criteria or impose additional criteria of its own, this objective would be thwarted. ##### [985-20-55-7](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:37a7143e20b242bf405707090e24958ff5c1f5c02d2d526f5a224dc66695992e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When a product comprises various modules that are not separately saleable, technological feasibility is established for the product as a whole, not on a module-by-module basis. The detail program design or the working model of the entire product (all modules linked together) must be completed before capitalization. ##### [985-20-55-8](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:c1665856237ab01e780131dfb60f933c43c45d13d07b166e77d5abdb2842115e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some entities in the software industry use the term _working model_ to mean a prototype in which critical parts of the product have been coded or written in pseudocode. This definition of working model does not meet the criteria in paragraph [985-20-25-2(b)](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2). This Subtopic defines a working model as having several key characteristics not found in that description of a prototype. ##### [985-20-55-9](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:c8f43a117105b9dd50f8662735eeecf4b4813836e348b11bcdaeaccba56c1d20 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To meet this Subtopic's criteria, the working model must meet all of the following conditions: 1. a It must be operative. 2. b It must be in the same language as the product that will be marketed. 3. c It must be complete with all the major functions that were planned for the product. 4. d It must be ready for initial [customer](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") [testing](https://asc.understandingaccounting.org/glossary/t/#testing "Performing the steps necessary to determine whether the coded computer software product meets function, feature, and technical performance requirements set forth in the product design."). ##### [985-20-55-10](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:61a7887673905e8e0716bbb5f553a3ade8efdeca867d34a3f623cccf6cc51983 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A high-risk development issue may arise after an entity has established technological feasibility by meeting the criteria in paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2). The previously capitalized costs and the costs to resolve the high-risk development issue should be accounted for as a change in accounting estimate in accordance with paragraph [250-10-45-17](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-17). That paragraph states that changes in accounting estimates result from new information. The discovery of a high-risk development issue after the entity's personnel thought technological feasibility was established meets this definition. Any previously capitalized costs for that product, as well as any additional costs incurred to establish technological feasibility, should be charged to expense as research and development until the criteria in paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) are met. ##### [985-20-55-11](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:fe92a539fa17e1382ea8c30f277866b606261048fc213033edab6466aae34d97 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When selling systems software, an entity may promise to keep the software current with revisions in the hardware, and incur costs in connection with this service. ##### [985-20-55-12](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:68336db1c3b7da9ad537d03459bbcd53acb7bedc323eb49251be2c8782a7cc93 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This activity appears to meet the definition of [maintenance](https://asc.understandingaccounting.org/glossary/m/#maintenance "Activities undertaken after the product is available for general release to customers to correct errors or keep the product updated with current information. Those activities include routine changes and additions.") because it keeps the product updated with current information. The cost of maintenance is charged to expense when related revenue is recognized or when those costs are incurred, whichever occurs first. The distinctions among maintenance, [customer support](https://asc.understandingaccounting.org/glossary/c/#customer-support "Services performed by an entity to assist customers in their use of software products. Those services include any installation assistance, training classes, telephone question and answer services, newsletters, on-site visits, and software or data modifications."), and product enhancements are sometimes very fine lines; in each case, the particular circumstances and intentions of the entity should be evaluated in light of the definitions in this Subtopic for each activity. ##### [985-20-55-13](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:047459121bfd17db3f90ce282b8ca21b2ae6928c37c47b6225f1c52aad6fcdd8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may purchase software that will be integrated into another software or hardware product. Assuming that purchased computer software has no alternative future use, its costs can be capitalized only if the technological feasibility of the product to be ultimately marketed has been established at the time of purchase. Such factors as the timing of receipt or the status of hardware and internal software development may be crucial in determining whether technological feasibility is established at the time of purchase. ##### [985-20-55-14](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:dde39d878391e9ea6a8d70588ace61d8809a012fc665ada92e19a158e52941e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may purchase software before technological feasibility has been established. For example, an entity purchases software for $100,000 that can be resold for $75,000. The amount of $25,000 would be charged to research and development, and $75,000 would be capitalized. If the software product reached technological feasibility, the $75,000 would be included in the cost of the software product. If the technological feasibility of the software was never established, the $75,000 would be classified as inventory. ##### [985-20-55-15](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:e1087cf355a2b137c102f2aed5a31f34943cbb98757676090507cbe3ca76ac2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Estimates of future revenues or the remaining economic life for a product may change over the period in which the software product is being amortized. Amortization for any asset is based on estimates of future events, and software is no exception. The most recent information should be used to determine if changes to estimates should be made. ##### [985-20-55-16](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:8f3e3d9376290aaa9ee13236c0f41787242d4f1decc5350b3baed4f23b92110e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [985-20-35-1](https://asc.understandingaccounting.org/asc/985/20/#985-20-35-1) indicates that straight-line amortization of a software product is computed over the remaining estimated economic life of the product. As such, the unamortized cost of the product should be divided by its remaining life, including the current year. ##### [985-20-55-17](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:2a6d89f0ba351e2847705b125dde3ca7372ea1a4cc3ed619c7548e790c61061e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the completed software product does not include all features that had originally been planned, the accounting depends on an evaluation of the modified product. If the product is saleable without the features that were dropped, no specific accounting is required. The net realizable value test controls the amount of capitalized costs. Application of the net realizable value test may result in a writeoff of some or all of the product's capitalized costs. If the product is not saleable without the dropped features, the technological feasibility of the product is not established. ##### [985-20-55-18](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:66c1e580c9e873c0a2e79e08399700a9c955e911c1148fa4b43f1a97760a9c41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Costs incurred for [product enhancements](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.") should be charged to expense as research and development until the technological feasibility of the enhancement has been established. If the original product will no longer be marketed, any unamortized cost of the original product should be included with the cost of the enhancement for purposes of applying the net realizable value test and amortization provisions. If the original product will remain on the market along with the enhancement, the unamortized cost of the original product should be allocated between the original product and the enhancement. ##### [985-20-55-19](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:8fa30245b7d027d89936eafc500009c9c68848f5a68d02a86dd39b61123e5306 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The estimated useful life of a product enhancement is the estimated life of the enhancement. It is not the remaining life of the original product nor is it the remaining life of the original product for any costs of the original product included in the enhancement and the estimated life of the enhancement for all other costs. All costs of a product enhancement, including any costs carried over or allocated from the original product, should be amortized over the enhancement's estimated useful life. ##### [985-20-55-20](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:010f6883f68ac159cb173e22739ffad321d2bbab74aabe4019a0766a9219dc9f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The technological feasibility criteria in paragraph [985-20-25-2](https://asc.understandingaccounting.org/asc/985/20/#985-20-25-2) must be met for a product enhancement if the criteria had been met for the original product. ##### [985-20-55-21](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:0c370d63bb644e6fc64599c8864a70e3ee8b3063aae5bee104b788f2c1772d06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Product enhancements are specifically included in the scope of this Subtopic and, as such, are subject to the same requirements as any other software product. However, technological feasibility may be more easily established for a product enhancement than for a new product, and capitalization of costs may, therefore, begin relatively earlier in the software process. For example, an enhancement that adds one function to an already successful product may require only minor modifications to the original product's detail program design to establish technological feasibility. ##### [985-20-55-22](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:a186261e296387f7d51432c362e10a054abf0c92c285f441abf7fab127058457 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Similarly, in some cases, software that is ported (made available for a different piece of hardware) may not require a new detail program design, and capitalization of the enhancement costs may begin once any high-risk development issues have been resolved. #### Illustrations ##### [985-20-55-23](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:071598862b47c1db21160bf9f96ee3e91194878e0cf960744ee0496652f9eed0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the disclosure requirements of Topic 275 to risks and uncertainties related to capitalized software costs. This Example has the following assumptions. ##### [985-20-55-24](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:08e3ec8b865891e744342a69cdec424fad5c2c4a7d5fb871a19d1dcb59f660c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Software, Inc. develops and markets computer programs. In 20X3, it acquired a software entity. A significant portion of the purchase price was allocated to (capitalized) Product A (present net book value of $5 million), the most significant and profitable software program currently being marketed by the acquired entity. Only nominal amounts of other software costs have been capitalized. Software, Inc. expects Product A and its derivatives to be among its most significant products over the next several years. However, a competitor has recently released a new product designed to compete directly with Product A. Software, Inc. amortizes the capitalized software costs of Product A by the greater of the following: 1. a The ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product 2. b The straight-line method over the remaining estimated economic life of the product including the period being reported on, pursuant to this Subtopic. ##### [985-20-55-25](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:b705bdc76515f861950274eb25e9d79bae339e553e687f6f4597610c95536f28 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount of the amortization computed for the year 20X4 was equal to 20% of the beginning-of-the-year capitalized amount and was a significant component of cost of sales. ##### [985-20-55-26](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:86a735225e974a3e29b106b559980abeb85a99bdb149446e73bb45bbdecde576 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The segment of the computer software industry in which Software, Inc. operates is characterized by sales of products occurring primarily on the basis of customers' perceptions of the relative technical merits of competing products. Those perceptions are greatly influenced by product reviews in technical journals and advertising, and they can change rapidly. Innovative products have been introduced in recent years that have reduced quickly and significantly the volume of sales of preexisting products in the same market niche. While management of Software, Inc. believes its estimates of future gross revenues and the estimated economic life of Product A used in the determination of the amortization of capitalized software costs are reasonable, new products introduced by its competitors, such as the one discussed in paragraph [985-20-55-24](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-24), could have a significant near-term negative effect on such estimates. As a result, the amount of periodic amortization could increase in the near term in amounts that could be material to the entity's financial statements. ##### [985-20-55-27](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:622f5e7bdead35c60a3495b50ae25de7474c407e570f069692d5681a96f89386 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Software, Inc. would make the following disclosure. - Software, Inc.'s policy is to amortize capitalized software costs by the greater of the following: 1. a The ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product 2. b The straight-line method over the remaining estimated economic life of the product including the period being reported on. - It is reasonably possible that those estimates of anticipated future gross revenues, the remaining estimated economic life of the product, or both will be reduced significantly in the near term \[due to competitive pressures\]. As a result, the carrying amount of the capitalized software costs for Product A ($5 million) may be reduced materially in the near term. ##### [985-20-55-28](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:786bbf7e55c48cb950815aed40280614b54bf06e43a3b41433c21a0f61c11fd3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, the entity acknowledges that the carrying amount of its capitalized software costs is subject to significant uncertainty. The uncertainty relates to estimates of future years' revenues and useful lives that are made at the date of the financial statements, and the entity is aware that circumstances exist that could cause such estimates to change in the near term. The entity's disclosure makes clear that it is at least reasonably possible that the carrying amount could be reduced in the near term. ##### [985-20-55-29](https://asc.understandingaccounting.org/asc/985/20/#985-20-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T02:28:46.552Z to 2026-09-10T02:28:46.552Z Record version: sha256:e69d6c92fd8d30f9d6dfc56fd67cfc63eec5eaca735867196ea13fe110ab4228 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the amortization policy in the preceding illustrative disclosure is already disclosed elsewhere in the notes, it need not be repeated. The reference in brackets to competitive pressures in the preceding illustrative disclosure is an example of voluntary disclosure of factors that cause the estimate to be sensitive to change that is encouraged by paragraph [275-10-50-9](https://asc.understandingaccounting.org/asc/275/10/#275-10-50-9).