Comptroller's Office
 Policies and Procedures Manual

   

CMP 140: Intangible Assets Questions & Answers (Q&A)


 The following Questions & Answers relate to CMP 140: Intangible Assets

Q1: Is there a minimum participation below which project management can ignore the person’s salary?  

Q2: If we don’t reach the 30% incremental effort level on a project do we still add in the salaries and other costs listed under internally generated software? 

Q3: How are annual right-to-use license fees for software to be handled during the post-implementation phase? 

Q4: If we add products to an existing license to acquire a new betterment (say MS Exchange added to our Microsoft Campus Agreement), do we count just the cost differential or the whole license (prior to the betterment + after the betterment) in calculating betterment project costs? 

Q5: If we start a project and begin doing capitalization but later never have a go live date, how is this handled? 

Q6: If the University is developing an enterprise resource planning (ERP) system with multiple modules, and each module will be developed on an individual timetable, including different implementation dates, should the guidance of CMP 140 be applied to each individual module or to the ERP system as a whole?

Q7: What are examples of evidence of a government’s current intention, ability and presence of effort to complete or, in the case of a multiyear project, continue development of an internally generated asset?

Q8: The University has a maintenance contract with a software vendor under which it pays an annual fixed fee that covers all required maintenance and any minor unspecified upgrades.  More significant upgrades to the software, such as an upgrade to a new version, are not covered under this contract, and the University is charged for them separately.   How should the University account for the outlays associated with the maintenance contract?

Q9: Should the costs associated with training of employees involved with developing internally generated computer software be considered an activity of the application development stage and be capitalized.

Q10: What costs should be included for capitalization purposes and do the type of costs change if the intangible asset is internally developed? 

Q11: Should outlays from business process reengineering activities that occur as a result of the development of internally generated computer software be included when determining the reporting of outlays associated with the development of the software?  

Q12: What would typically fall under the website capitalization threshold

 

1)   Q1: Is there a minimum participation below which project management can ignore the person’s salary?  
A1: As a general guideline anything below 100 hours on a project during the application development stage, or roughly 5% of an annual 2080 hr work year, may be considered immaterial for purposes of capturing project costs.  However, it could be less depending on the resource and how their tasks are defined in the project plan. For example, you might have a group of 10 employees doing critical functional testing for a total of 80 hours each.  Individually, the participation might be considered minimal, but together their efforts would be significant to the project in both importance and level of effort.  

Q2: If we don’t reach the 30% incremental effort level on a project do we still add in the salaries and other costs listed under internally generated software? 
A2: If there is more than a remote possibility that those costs will reach the 30% level and the total costs of the intangible resource under consideration will meet or exceed the relevant capitalization threshold, then yes those costs should be captured.

Q3: How are annual right-to-use license fees for software to be handled during the post-implementation phase? 
A3: The GASB statement describes intangible assets as being purchased or licensed.  If the licensing agreement is structured similar to an installment purchase with an initial cost and subsequent annual license payments, then we would need to consider the initial cost plus any required annual license fees.  This would also involve recording a long term liability for the contractual license obligation.  Due to the various ways licensing agreements may be written, each should be reviewed on a case-by-case basis to determine the applicability of CMP 140. 

Q4: If we add products to an existing license to acquire a new betterment (say MS Exchange added to our Microsoft Campus Agreement), do we count just the cost differential or the whole license (prior to the betterment + after the betterment) in calculating betterment project costs? 
A4: Just the cost differential.

Q5: If we start a project and begin doing capitalization but later never have a go live date, how is this handled? 
 A5: At the end of each fiscal year, the Comptroller’s Office would record a “Development in Progress” adjustment for the application development costs that were incurred during the year.  If the project was scratched in the subsequent fiscal year, we would record an impaired asset adjustment (another GASB statement) and basically expense the “Development in Progress” costs in the new fiscal year.

Q6: If the University is developing an enterprise resource planning (ERP) system with multiple modules, and each module will be developed on an individual timetable, including different implementation dates, should the guidance of CMP 140 be applied to each individual module or to the ERP system as a whole?
A6: The guidance of CMP 140 for internally generated software is based on the stages of software development.  Generally, in the circumstances above, each module will have its own development cycle, particularly as it relates to the application development phase.  Therefore, the guidance for CMP 140 should be applied for each individual module of the system rather than the system as a whole.

Q7: What are examples of evidence of a government’s current intention, ability and presence of effort to complete or, in the case of a multiyear project, continue development of an internally generated asset?
A7:

Q8: The University has a maintenance contract with a software vendor under which it pays an annual fixed fee that covers all required maintenance and any minor unspecified upgrades.  More significant upgrades to the software, such as an upgrade to a new version, are not covered under this contract, and the University is charged for them separately.   How should the University account for the outlays associated with the maintenance contract?
A8: The outlays associated with the maintenance contract typically will be expensed unless they represent a major upgrade (30% of the underlying cost of the original software 140.2).

Q9: Should the costs associated with training of employees involved with developing internally generated computer software be considered an activity of the application development stage and be capitalized.
A9: No, although the skills obtained by the employees through the training may facilitate the development of the computer software, the training itself does not further the development of the software and does not otherwise contribute to putting the software in condition for use. Therefore, the related training costs should be expensed as incurred.

Q10: What costs should be included for capitalization purposes and do the type of costs change if the intangible asset is internally developed? 
A10: In general, all costs not otherwise capitalized (e.g. hardware >$5,000) that are necessary to place the asset into its intended service use (i.e., costs directly related to the creation of the intangible assets) should be capitalize. Costs typically excluded include training (see Q&A #9), business reengineering costs and other ancillary charges not directly related to the creation of the intangible asset (e.g., office supplies, training related travel, reference materials, and other general operating expenses).

Q11: Should outlays from business process reengineering activities that occur as a result of the development of internally generated computer software be included when determining the reporting of outlays associated with the development of the software
A11: No. Although business process reengineering activities may occur as a result of the development of computer software or may be part of a broad project that also involves the development of computer software, these activities should not be considered part of the process to develop the computer software.  Therefore, determining the appropriate accounting treatment for the outlays associated with business process reengineering activities should be done separately from determining the recognition of outlays associated with developing computer software. Generally, business process reengineering activities should be expensed as incurred.

Q12: What would typically fall under the website capitalization threshold
A12: in general, a website would consist of a collection of related static and dynamic web pages that are addressed relative to a common Uniform Resource Locator (URL) or domain name.  Access to the website's web pages would typically not be restricted and web page information would be general in nature.  Websites that are restricted to certain users and are designed to help the user to perform singular or multiple related specific tasks would typically be considered web applications that would fall under the computer software capitalization threshold. Other characteristics of web applications might include 1) the website has some type of connectivity to the organization's administrative systems or related databases either directly or indirectly and 2) users have a relationship with the organization (e.g. customer, vendor, employee or student) and their access to inquiry or processing tasks are restricted.