Intangible assets are identifiable non-monetary resources that have no physical substance but provide the company controlling them with a benefit and, as a result, have a higher degree of uncertainty regarding future benefits. When intangible assets are acquired through an arm's length transaction, they are recorded at cost. SFAS classifies intangible assets in different categories and provides a guideline in regards to their expense or capitalization.
1.Research and development costs
- SFAS requires virtually all R&D costs to be expensed in the period they were incurred and the amount to be disclosed.
- The main exception to the expensing rule is contract R&D performed for unrelated entities.
2.Software development
- SFAS requires all costs that were incurred in order to establish technological and/or economic feasibility of software to be viewed as R&D costs and expensed as they are incurred.
- ONCE economic feasibility has been established, subsequent costs can be capitalized (but are not required to be) as part of product inventory and amortized based on product revenues or on sales-per-license basis.
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