Business Procedures Manual

Essential business procedural components for University System of Georgia institutions.

7.10 Intangible Assets

(Last Modified on May 1, 2017)

GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets establishes standards for accounting and reporting of intangible assets. An intangible asset is property, which possesses the following characteristics:

  • Lack physical substance, such as computer software
  • Nonfinancial in nature which has no monetary form
  • Initial useful life extends beyond one reporting period.

Examples of intangible assets include easements, water rights, timber rights patents, trademarks and computer software. Intangible assets may be purchased, licensed or internally generated.

Intangible assets should be measured/valued in the same manner as other capital assets: historical cost, or if donated, estimated fair value at date of donation.

7.10.1 Depreciation Amortization Methodology

(Last Modified on May 1, 2017)

Amortization is the accounting process of allocating the intangible asset’s capitalized costs to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. Amortization is not a matter of valuation, but a means of cost allocation. Intangible assets are not amortized based on a decline in their fair market value, but based on systematic charges to expense.

An intangible asset that has an indefinite useful life is not amortized if there are no legal, contractual, regulatory, technological, or other factors that limit its useful life. A permanent right of way easement would be an example of an intangible asset that is considered to have an indefinite useful life.

Intangible assets with discernable useful lives should be amortized over the estimated useful life using the straight-line method (historical cost less residual value, divided by the useful life.


7.10.2 Capitalization Threshold

(Last Modified on May 1, 2017)

Intangible assets should be capitalized on the accrual basis of accounting in the institution’s accounting records if the asset meets all of the following conditions:

  1. Is owned by the institution and held for operations, not for resale,
  2. Has a useful life that exceeds one (1) year,
  3. Meets the appropriate capitalization threshold(s), as shown below:

Intangible Asset Description and Capitalization Thresholds

Asset Description Cost Threshold Useful Lives
Software (purchased or internally generated) $1 Million 10 years
Water Rights $100,000 20 years
Timber Rights $100,000 20 years
Mineral Rights $100,000 20 years
Easements $100,000 20 years



Asset Description Cost Threshold Useful Lives
Patents $100,000 20 years
Trademarks $100,000 20 years
Copyrights $100,000 20 years

Note: SAO has made the determination that E-Books, software licenses and access rights to other electronic reference materials whereby access to databases is obtained through multi-year contracts (or a one-time cost is incurred that makes the data permanently accessible) should be capitalized as software. Otherwise, software licenses/access rights paid for on an annual basis, with no multi-year commitment of funds, are not subject to capitalization.


7.10.3 Internally Generated Intangible Assets

(Last Modified on May 1, 2017)

Common types of internally generated intangible assets include computer software, patents, trademarks and copyrights.

Generally, intangible assets are considered internally generated if they are:

  1. Created or produced by the institution or a third party entity contracted by the institution, or

  2. Acquired/purchased from a third party, but require more than a minimal incremental effort on the part of the institution to achieve their expected level of service capacity.

Costs incurred in creating an internally generated intangible asset should either be expensed or capitalized depending on the asset’s stage of development. In initial development, outlays incurred related to the development of an internally generated intangible asset, should be capitalized only when all three of the following have occurred:

  1. Determination of the specific objective of the project and the nature of the service capacity that is expected to be provided by the intangible asset upon the completion of the project.

  2. Demonstration of the technical or technological feasibility for completing the project so that the intangible asset will provide its expected service capacity.

  3. Demonstration of the current intention, ability, and presence of effort to complete or, in the case of a multiyear project, continue development of the intangible asset.

Only outlays incurred subsequent to meeting the above criteria should be capitalized. Outlays incurred prior to meeting those criteria should be expensed.

Internally Generated Computer Software

Internally Generated Computer Software (IGCS) is the most common type of intangible asset that is generated internally.

In addition to the capitalization criteria discussed above, which is applicable for all internally generated intangible assets, IGCS will only meet those capitalization criteria if/when both of the following occur:

  1. Activities in the preliminary project stage are completed; and,

  2. Management implicitly or explicitly authorizes and commits to funding the software project, at least currently in the case of a multiyear project.


As with other internally generated intangible assets, IGCS is considered internally generated when it is either:

  1. Developed in-house by institution personnel or contractors on behalf of the institution, or

  2. Commercially available software that is purchased or licensed by the institution and modified using more than minimal effort before placing in in operation. An example would be purchased software that has been specially modified to add special reporting capabilities.

Capitalization of IGCS Based on Stages of Software Development

Costs incurred in developing and installing IGCS are either expensed or capitalized depending on the stage of the asset’s development.

Software development generally involves three stages based on the nature of the activities, not timing of occurrence.

  1. Preliminary Project Stage: Activities in this stage include the conceptual formulation and evaluation of alternatives, the determination of existence of needed technologies, and final selection of alternatives for development of the software. Activities in this stage should be expensed as incurred.

  2. Application Development Stage: Activities include the design of the chosen path, including software configuration and software interfaces, coding, installation of computer hardware, and testing, including parallel processing phase. Activities in this stage should be capitalized to the point at which the computer software is substantially complete and operational.

  3. Post-Implementation/Operation Stage: Training and application maintenance activities. Activities in this stage should be expensed as incurred.

Data conversion costs, costs that allow for access or conversion of old data by new information systems should be capitalized only to the extent necessary to make the computer software operational. Otherwise, those costs should be expensed as part of Stage 3-Post Implementation.

When dealing with IGCS costs, it is particularly important to capture them into the appropriate project stage to ensure there is an accurate proration of costs between expenses and capitalized activity. Costs incurred during the Application Development State are subject to capitalization.

Examples of capital costs incurred during the Application Development State would include:

  • External direct costs of materials and services, such as third party fees for services
  • Costs to obtain software from third parties
  • Travel costs incurred by employees in their duties directly associated with development
  • Payroll and payroll-related costs of employees directly associated with or devoting time in coding, installing, or testing
  • Interest costs incurred during the application development

Modifications of internally generated software that is already in operation should only be capitalized if the modifications result in any of the following:

  • An increase in the functionality of the software; or,
  • An increase in the efficiency of the software; or,
  • An extension of the estimated useful life of the software.

Note: If an institution determines that a shorter useful life is appropriate for software, then the method for estimating the useful life must be formally documented.


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