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Business Analysis and Reporting/Blueprint/2.B

Internal-use software and cloud computing

Area 2: Technical Accounting and Reporting (35-45%)

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Topics

  • ASC 350-40 capitalization stages
  • Cloud computing hosting arrangements

Lessons

  • Internal-Use Software and Cloud Computing

Study Frameworks

Internal-Use Software Capitalization Stages

ASC 350-40: Internal-Use Software
Stage 1: Preliminary Project
Conceptual formulation and vendor evaluation
Feasibility assessment
Treatment: EXPENSE all costs
Stage 2: Application Development
External direct costs (coding, testing)
Internal payroll (developers on project)
Interest costs (qualifying asset)
Data conversion for functionality
Treatment: CAPITALIZE
Stage 3: Post-Implementation
Training, maintenance, bug fixes
Routine data conversion
Treatment: EXPENSE all costs

Cloud Computing Arrangement Classification

Cloud Computing Arrangement (CCA)
Test 1: Right to Take Possession
Can customer take possession without significant penalty?
If NO → Service contract
Test 2: Feasibility
Can customer run software independently or with unrelated host?
If NO → Service contract
Both Tests Met → Software License
Capitalize as intangible (ASC 350-40)
Amortize over software useful life
Either Test Failed → Service Contract
Implementation costs → prepaid expense
Amortize over hosting term (incl. renewals)
Practice These Topics(38 questions)