According to GASB Statement No. 51 (Accounting and Financial Reporting for Intangible Assets), only costs incurred during the “application development stage” are capitalized for internally generated software. These include:
✔Development of the system – $500,000
✔Development of interfaces – $75,000
✔Data conversion necessary to make software operational – $50,000
✔Testing the software – $130,000
Excluded (should be expensed):
✘Evaluation of needs (preliminary) – $100,000
✘Selection of developer – $25,000
✘Staff training – $15,000
✘Ongoing maintenance – $20,000
Total Capitalizable Costs:
$500,000 + $75,000 + $50,000 + $130,000 = $755,000
Relevant References:
GASB Statement No. 51 – Paragraphs 6–12
GFOA Guidelines – Capitalization of Intangible Assets
Answer: C. $755,000
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