If you develop software for internal use… you should capitilize all cost including research and development
if you develop software for sale ( for others)… expense research and development cost till technical feasbility has been estabilished.
all other things except software you should expense
IFRS:
You must expense all cost till research and you can capitilize development cost in general) but for software only after technical feasibility has been established.
Software development costs can be capitalized once their technical feasibility is established i.e. software does what it is meant to do.
Product research and development costs must be expensed under GAAP but IFRS allows you to capitalize the development costs ONLY WHEN
1). You have a market to sell the product.
2). You intend to sell the product.
3). Technical feasibility is established.
4). Resources to compete.
5). Costs can be clearly determined.
You seem right on IFRS but on GAAP, there is a small problem. GAAP does not allow you to capitalize the development costs regardless of you producing the software for your own use or for market. Just remember that you are not allowed to capitalize the development costs at all under GAAP.
I read it in schweser guide clearly that you can mostly capitilize software development cost for internal use but now i can’t seem to find that particular content… although i could confirm it through various links…
Yes under US GAAP you can capitalize certain Research and Development costs related with software development. This is written on page 449, FRA chapter long lived Assets, CFA official curriculam.
The condition is: it is probable that project will be completed and software will be used as intended. Otherwise companies expense cost.
They gave example 3 (on same page) which shows company using GAAP capitalizes Software develoment cost for internal use.
All expenses related to r & d and software development are too be expensed… until under ifrs devlopment stage has been identified and under us…gaap the software is for self use or technological feasibility phase for software has been established.
I understand that in IFRS you expense till technical feasibility has been established and capitalize after that for both own use and sale. I am still not clear about US GAAP for both the criteria, can someone help? Please and thank you.
For normal situation under IFRS, Research cost is expensed, and Development cost may be capitalised, while both R&D are expensed under US GAAP.
For software development, US GAAP, if developed for internal use, both R&D are capitalised, and if developed for sale, R&D are expensed until feasibility is ascertained.
For IFRS, R&D cost is expensed until feasibility is ascertained before capitalising.