The postimplementation-operation stage begins when the internal-use software is ready for its intended use. During this stage, all training and routine maintenance costs should be expensed as incurred.

3.4.1 Internal-use software upgrades and enhancements

The accounting for upgrades and enhancements to internal-use software follows the same accounting model as other internal-use software costs (i.e., qualifying costs are capitalized during the application development stage), provided it is probable that the expenditures will result in additional functionality. Additional functionality means that the software modifications enable the software to perform tasks that it previously was not capable of performing.
Judgment may be required to assess whether upgrades and enhancements result in additional functionality. Examples of modifications that result in additional functionality include modifications that allow software to operate on an additional hardware platform or in an additional environment. ASC 350-40-25-10 indicates that if reporting entities cannot reasonably separate costs of relatively minor upgrades and enhancements from costs of maintenance, the costs of those minor upgrades and enhancements should be expensed as incurred.
Question SW 3-1
How should reporting entities account for software upgrades and enhancements to purchased software that are received through a post-contract customer support (PCS) arrangement?
PwC response
In connection with the purchase of software from a third party, reporting entities often also contract for PCS related to the software, which includes the right to receive unspecified when-and-if available updates and upgrades. Pursuant to ASC 350-40-25-11, unspecified updates and upgrades received through a PCS arrangement should be expensed over the contract period on a straight-line basis, unless another systematic and rational basis is more representative of the pattern in which the services are received. Costs related to specified upgrades received by the reporting entity should be assessed under the general guidance for software upgrades and enhancements to determine what costs, if any, should be capitalized (e.g., based on whether they result in additional functionality). It may be necessary to allocate costs paid to a third-party vendor between costs that are capitalizable and costs that must be expensed if an arrangement includes multiple elements, as discussed in SW 3.6.
Expand Expand

Welcome to Viewpoint, the new platform that replaces Inform. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory.

signin option menu option suggested option contentmouse option displaycontent option contentpage option relatedlink option prevandafter option trending option searchicon option search option feedback option end slide