Capitalizing, Expensing, and Amortizing Software and R&D Costs

This chapter covers a technical area where classification decisions drive recognition, amortization, and disclosure. The main BAR issue is knowing when spending creates an asset, when it stays an expense, and how the answer changes across software and research contexts.

In This Chapter

• Internal-Use versus External-Sale Software compares the software models that determine whether costs are capitalized.
• Research versus Development Costs explains the boundary between exploratory and qualifying activities.
• Amortization and Technological Feasibility covers the later-stage accounting once capitalization is appropriate.
• Common Classification Errors highlights the mistakes that often lead to wrong BAR answers.

How to Use This Chapter

• Read this chapter when software and R&D questions are blending together.
• Focus on the triggering stage or condition that changes the accounting treatment.
• Revisit it whenever a fact pattern asks you to separate internal-use, external-sale, and pure research costs.

In this section

• Applying Capitalization Rules to Internal-Use and External-Sale Software
  How BAR distinguishes capitalization for internal-use software from external-sale software.
• Separating Research Costs from Development Costs
  How BAR separates research-stage spending from development-stage spending and why the distinction matters.
• Amortizing Capitalized Costs After Technological Feasibility
  How technological feasibility affects later measurement and amortization for capitalized software costs.
• Avoiding Common Classification Errors in Software and R&D Accounting
  How BAR spots common misclassification errors across software and research-cost fact patterns.