|Capital Asset Management
|To provide guidance on the accounting and reporting of computer software assets in the Capital Asset Management System in accordance with Statement No. 51 of the Governmental Accounting Standards Board (GASB).
Software purchased (not licensed) with hardware is capitalized with the cost of the equipment if the combined cost is over $5,000 and necessary to use the equipment for its intended purpose.
A stand-alone purchase or license of software must meet all of the following requirements in order to be capitalized:
The cost of the software and installation costs will be capitalized as an intangible asset per the following object codes:
Purchased/licensed software will be amortized by straight line basis and half year convention. Amortization will begin when the purchased/licensed software is placed in service. IU defines placed into service as the point in time when the software has been fully installed and is being used for its intended purpose. Until the software is placed in service, it will be considered construction in progress and should be assigned asset type code 90000.
The costs to modify purchased/licensed software by university staff or on behalf of the university are considered internally generated costs. Please refer to the internally generated software section below for further details.
Training and travel costs associated with capital purchased/licensed software should be expensed.
Modifications to purchased/licensed software should be capitalized when the cost of the modification is at least Five Hundred Thousand ($500,000) AND any one of the following exists:
If the modification does not meet both the dollar threshold and one of the three other criteria, the modification should be considered maintenance and the associated costs for the modification should be expensed.
Renewals are usually considered to be costs to continue the use of the software program. Renewals do not include any upgrades and should be expensed to object code 4616. If the renewal includes new software functionality, please refer to the modification section above for capitalization requirements.
For internally developed software to qualify for capitalization purposes, it needs to meet all of the following requirements:
The software will be capitalized as an intangible asset per the following object codes:
Types of Internally Developed Software
IU has identified the following types of internally developed software that will be considered for capitalization according to GASB Statement No. 51:
IU has indentified the following categories that will not be taken into consideration for capitalization according to GASB Statement No. 51:
Stages of Internally Developed Software
Costs incurred during the Preliminary Project Stage and during the Post-Implementation Stage should be expensed. Those costs include the following:
Capitalization of Costs
Only costs incurred subsequent to meeting the above criteria should be capitalized. Costs incurred prior to meeting those criteria should be expensed as incurred. (GASBS51, Par. 8)
What costs should be capitalized?
Capitalization should begin during the application development stage when both the preliminary project state is complete and management authorizes and commits to funding an internally developed software project. Internally developed software should be capitalized during the application development stage if the direct costs associated with services and/or labor costs are at least $500,000 and have a useful life greater than one year.
Since software development can take several months and even span multiple fiscal years, it will be placed in construction in progress until the development is done and the software is being used for its intended purpose. Capitalization costs include the following:
Capitalization of the above outlays should stop no later than the point at which the software is placed into service as operational. (GASBS51, Par. 12)
Internally developed software will be amortized under the straight line method using the half year convention. Amortization will begin when the internally developed software is placed in service. IU defines placed into service as the point in time when the software has been fully installed and is being used for its intended purpose. Until the software is placed in service it will be considered construction in progress and should be assigned asset type code 90000.
When the internally developed software has been placed in service asset type code 910001 should be used which will assign a three year useful life.
Accounting for labor costs
Modifications to internally developed software should be capitalized when the cost of the modification is at least Five Hundred Thousand ($500,000) AND any one of the following exists:
If the modification does not meet both criteria, the modification should be considered maintenance and the associated costs for the modification should be expensed.
According to GASB Statement No. 42 Accounting and Reporting for Impairment of Capital Assets, internally developed software will be reviewed each fiscal year for impairment. In addition to the indicators included in GASB Statement No. 42 a common indicator of impairment for internally developed software is development stoppage, such as a lack of funding to continue the project or stoppage due to changes in the priorities of management. Internally developed software impaired from development stoppage should be reported at the lower of carrying value or fair value. (GASBS51, Par. 18)
Units will be required, as part of their physical inventory, to inventory software to ensure that the software is still in use. When the software is no longer in use, the asset should be retired.
Departments are not required to tag software. Users should place a capital letter "N" in the tag number field of the Asset Tagging screen in the Capital Asset Maintenance System to indicate that the asset cannot be tagged. In addition, the inventory status should be set to "C" Active and Non-accessible.
- Assets that lack physical existence, are not financial in nature, and have a useful life greater than one year. These often times include, but are not limited to, easements, water rights, timber rights, patents, copyrights, trademarks, and computer software (purchased, licensed, and internally generated).
Identifiable - "An intangible asset is considered identifiable when either of the following conditions is met:
Licensed Software - Computer software that Indiana University has the right to use for a specified period of time based on an agreement with the vendor. (As a general rule, if the university stops paying the annual license fee, we no longer have the right to use the software.)Internally Generated Software - Computer software is considered internally generated if it is "developed in house by the government's personnel or by a third-party contractor on behalf of the government. Commercially available software that is purchased or licensed by the government and modified using more than minimal incremental effort before being put into operation also should be considered internally generated for purposes of this statement." (GASBS51, Par. 9)
GASB Statement No. 51: Accounting and Financial Reporting for Intangible Assets
GASB Statement No. 42: Accounting and Reporting for Impairment of Capital Assets
Organizations that purchase, license or internally develop software.