Kansas Department of Administration

10-a-012 - Intangible Assets (April 28, 2010)

DATE: April 28, 2010
SUBJECT: Intangible Assets
EFFECTIVE DATE: April 28, 2010

Martin Eckardt

(785) 296-2661


  Gail Barnhart (785) 296-3404 (Gail.Barnhart@da.ks.gov)
APPROVAL: Image of approval signature.

GASB 51 Reporting Intangible Assets


For the fiscal year 2010 Comprehensive Annual Financial Report (CAFR), the Division of Accounts and Reports must implement Governmental Accounting Standards Board Statement Number 51 (GASB 51), Accounting and Financial Reporting for Intangible Assets. GASB 51 now requires the State to capitalize intangible assets. Examples of intangible assets include computer software, easements, water rights, timber rights, patents, and trademarks. GASB defines intangible assets as having all of the following:

  • Lack of physical substance (i.e. software, right of way)
  • Nonfinancial nature (i.e. not cash, investment, receivables, etc.)
  • Initial useful life of greater than one year

One of the items that need specific attention is the capitalization of internally developed intangible assets (developed in-house by agency personnel or third-party contractor on behalf of the agency). Internally developed intangible assets should be capitalized if the following has occurred:

  • Agency knows the specific objective of project and nature of service capacity it should have when completed.
  • Agency has demonstrated technical feasibility of successful service capacity when completed.
  • Agency has demonstrated intention, ability and presence of effort to complete.

For internally developed intangible assets, expenditures incurred subsequent to meeting the above criteria should be capitalized. For internally generated software, only capitalize theapplication development stage of internally generated software. GASB 51 defines three stages of software development as:

  • Preliminary project stage – includes conceptual formulation, evaluation of alternatives, determined existence of needed technology, and final selection of software made. Do not capitalize. Expense as occurs.
  • Application development stage – includes software configuration and software interfaces, coding, installation to hardware and testing, including parallel processing phase. Expenditures in the application stage should be capitalized only if 1) the expenditures were incurred subsequent to the completion of the preliminary stage and 2) management implicitly or explicitly authorizes and commits to funding the software project. All costs should be recorded as construction in progress until the system is usable. Labor costs should be capitalized, however, general administration costs and overhead costs should not be capitalized (AICPA SOP98-1).
  • Post-implementation/operation stage – includes application training, data conversion (beyond that needed to make the system operational) and software maintenance. Do not capitalize. Expense as occurs.

Data conversion should be considered an activity of the application development stage only to the extent it is determined to be necessary to make the computer software operational for use. Otherwise, data conversion should be considered an activity of the post-implementation/operation stage. Costs associated with internally generated computer software should be applied based on the nature of the activity, not the timing of its occurrence.

Software updates should only be capitalized only if it meets the threshold and one of the following applies:

  • Software is able to perform tasks that it was previously incapable of performing.
  • Software increases efficiency of computer software.
  • Software extends the useful life.

For CAFR reporting, we have established a threshold of $250,000 for intangible assets (including software). Agencies still have stewardship responsibilities for all intangible assets less than $250,000, however, these items will not be reported in the CAFR or form DA-87. For those agencies with Federal funds, you should be aware that the Federal threshold is currently set at $5,000.

Retroactive reporting is required for intangible assets acquired July 1, 1980 or later, except those with indefinite useful lives and internally generated intangible assets. For indefinite useful lives intangibles and internally generated intangible assets, reporting is required to begin with fiscal year 2010 expenditures. As in previous years, Accounts and Reports will provide agencies form DA-87 with the beginning balances as provided for FY 2009. To assure we are recording these transactions correctly in the CAFR, for FY 2010 we have inserted a worksheet to reconcile changes due to GASB 51. If your agency has any intangible assets that are not software, please provide a description of the asset on the form DA-87.

Should you have any questions, please contact Gail Barnhart at (785) 296-3404 (Gail.Barnhart@da.ks.gov), Fatima Gilbert (785) 296-2127 (Fatima.Gilbert@da.ks.gov) or Leroy Charbonneau at (785) 296-2130 (Leroy.Charbonneau@da.ks.gov).


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