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Accounting for Software Development

We are in the process of entering into an agreement with a SaaS company to license their software on a monthly basis. Prior to launch, my company will be paying them upfront co development fees to bring their software to as close to a perfect match of our unique needs as possible. Such enhancements will become available to all other clients of the SaaS company with the exception of any listed competitors of ours. We will have no ownership rights to the software, but will continue to pay monthly licensing fees as well as monthly development and maintenance fees for further enhancements after launch. In connection with these upfront development fees, the SaaS company will also be developing an App that will be proprietary to our company. No other company will have access to this App or some of the unique functionality associated with it. I realize the monthly license fees are to be expensed but what about the upfront development costs and ongoing monthly development costs for enhancements? Considering we do not take ownership of the software, but such development is specific to our needs, can these amounts be capitalized?


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