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The cost of either purchasing or developing computer software cannot be capitalized unless it is for administrative use. Administrative software whose total cost exceeds $50,000 must be charged to a special capital project/grant (XXX830X) and amortized over the useful life of the software. In general, all costs incurred for either buying or developing the software are capitalized once a decision to proceed has been made, with the exception of training and data clean-up costs.

Specific costs that are capitalized include:

• External or internal direct costs for all of the following which are incurred for developing or obtaining the administrative software during the Development Phase:
  
  • materials and services
  • payroll and payroll-related expenses
  • interest
  • specific upgrades and enhancements which add functionality
  • purchase or development of software for the conversion or access of old data.
    
    
• The Development Phase begins once the preliminary project stage is complete and a decision has been made to buy or develop the software and ends once the software is ready for its intended use, after all substantial testing is complete.

Costs of administrative software that cannot be capitalized include:

• Costs incurred during the Preliminary Project Stage (evaluation of alternatives, selection of alternatives) or the Post-Implementation Stage (training, maintenance, unspecified upgrades)
• Data conversion costs (purging or cleaning of existing data)
• General and administrative costs and overhead costs
• Licensing fees
• Cost of re-engineering the business process

If you have questions, please feel free to contact Rick Kelleher.