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Capitalizing Software configuration costs

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We purchased a major software package and are now in the process of customizing it for our own use. This is an extensive undertaking, entering detailed information and is taking several months. Are we allowed to capitalize the salaries of our employees that are customizing the software to meet our specific needs? We are not changing source code but are configuring items for our needs.

Answers

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Yes, you can capitalize these costs. In simplest terms, you can capitalize all costs except training costs. Make sure you have them appropriately documented. I have typically taken salary rates multiplied by hours and add 15%-25% for benefits. Some other "watch outs" here include sales taxes. Many states have different rules for customized software vs. off the shelf software.

If you need the guidance, use SOP 98-1. You can find this on the FASB website.

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