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Office of Business and Finance

Statement: Implementation of GASB 51

GASB 51 establishes consistent standards for the reporting of intangible assets.  Examples of intangible assets include easements, water rights, timber rights patents, trademarks, and computer software.  Intangible assets can be purchased or licensed, acquired through nonexchange transactions, or internally generated.

Scope and Applicability

This Statement establishes standards for accounting and financial reporting for intangible assets.  An intangible asset is an asset that lacks physical substance, is nonfinancial in nature, and has an initial useful life extending beyond a single reporting period.  The provisions of this statement apply to all intangible assets except 1) those acquired or created primarily for the purpose of directly obtaining income or profit, 2) assets resulting from capital lease transactions reported by the lessees, or 3) goodwill.

Accounting and Financial Reporting for Intangible Assets Using the Economic Resources Measurement Focus

All intangible assets subject to the provisions of this Statement should be classified as capital assets.  An intangible asset should be recognized in the statement of net assets only if it is identifiable. An intangible assets is considered identifiable when it is either separable or it arises from contractual or other legal rights.

Outlays incurred related to the development of an internally generated intangible asset that is identifiable should be capitalized when all of the following have occurred:

  • 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 has been determined.
  • The technical or technological feasibility for completing the project so that the intangible asset will provide its expected service capacity has been demonstrated.
  • The current intention, ability, and presence of effort to complete or continue development of the intangible asset has been demonstrated.

Outlays incurred prior to meeting the above three criteria should be expensed as incurred.

Commercially available software that is purchased or licensed by the institution and modified using more than minimal incremental effort before being put into operation should be considered internally generated for purposes of this Statement.

The activities involved in developing and installing internally generated computer software can be grouped into the following stages:

  • Preliminary Project Stage.  Activities in this stage include the conceptual formulation and evaluation of alternatives, the determination of existence of needed technology, and the final selection of alternatives for the development of software.
  • Application Development Stage.  Activities in this stage include the design of the chosen path, including software configuration and interfaces, coding, installation to hardware, and testing, including parallel processing phase.
  • Post-Implementation/Operation Stage.  Activities in this stage include application training and software maintenance.

For internally generated computer software, expenses should be capitalized when both of the following have occurred:  1) the activities noted in the preliminary project stage are completed, and 2) management implicitly or explicitly authorizes and commits to funding the software project.  Accordingly, outlays associated with activities in the preliminary project stage should be expensed as incurred.  Outlays related to activities in the application development stage should be capitalized.  Capitalization of such outlays should cease no later than the point at which the computer software is substantially complete and operational.  Outlays associated with activities in the post-implementation/operation stage should be expensed as incurred.

Outlays associated with an internally generated modification of computer software that is already in operation should be capitalized in accordance with the paragraph above if the modification results in any of the following:

  • An increase in the functionality of the computer software.
  • An increase in the efficiency of the computer software.
  • An extension of the estimated useful life of the software.

The useful life of an intangible asset that arises from contractual or other legal rights should not exceed the period to which the service capacity of the asset is limited by contractual or legal provisions.  Renewal periods related to such rights may be considered in determining the useful life.  An intangible asset should be considered to have an indefinite useful life if there are no legal contractual, regulatory, technological, or other factors that limit the useful life of the asset.

Effective Date

This Statement is effective beginning FY 2009-10.  Accounting changes adopted to conform to the provisions of this Statement should be applied retroactively by restating financial statements for all prior periods presented.  If restatement is not practical, the cumulative effect of applying this Statement should be reported as a restatement of beginning net assets.  The financial statements should disclose the nature of this restatement and its effect. 

Retroactive reporting is required for intangible assets except for those considered to have indefinite useful lives and those that would be considered internally generated.  If determining the actual historical cost of these intangible assets is not practical due to the lack of sufficient records, the estimated historical cost should be reported for these intangible assets that were acquired in fiscal years ending after June 30, 1980.