Does anyone know if you would capitalize the cost overruns? For instnace, if the new system is supposed to cost $10 million; and instead costs $15 million, do you capitalize the entire $15 mill? Or would this be a violation of the principle of conservatism to not overstate the book value of assets? Specifically, if others could implement the internally generated software for $10 mill; and it costs you $15 mill due to cost overruns, what can be capitalized? thanks in advance for anyones help.
capitalize the cost overruns? sop 98-1 software
Dec 29, 2005
2 Replies
On 29 Dec 2005 15:55:20 -0800, in alt.accounting "Lucky Lenny 1964" wrote in :
Generally you capitalize the entire project, but if there are clear comparative costs that show that you wasted the money, that waste should be written off.
Hi. Under GAAP you would capitalize all appropriate costs incurred for internally generated software, make sure you exclude training and other non-capitalizable costs of developing the software. After doing so, if the value of the asset is lower than the capitalized costs you would reduce the value as an impaired asset under SFAS 144 "Accounting for the Impairment of Long-Lived Assets". You should obtain the best estimate available of the fair value of the asset to properly reduce the value to where it should be on the books. This may be difficult as the software may only hold value to the company that created it.
Hope this helps,
Stephen Lewis, CPA
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