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SPA Process User’s Guide
Chapter 1 – Introduction to Capital Assets

Intangible Assets

GASB 51 defines an intangible asset as one that lacks physical substance, is nonfinancial in nature and has an initial useful life extending beyond a single reporting period. All identifiable intangible assets subject to the provisions of GASB 51 should be classified as capital assets and be reported on the government-wide statement of net assets.

An intangible asset is identifiable when either of the following conditions is met:

  • Separable (capable of being separated or divided from the government)
  • Arises from contractual or legal rights

Land Use Rights

Land Use Rights Definition

Land use rights should include but not be limited to easements, mineral rights, timber rights, development rights or water rights. Land use rights should not be reported as separate intangible capital assets if the state/agency already owns the real property capital asset. The ownership of real property inherently includes a “bundle of rights.” Although these rights are separate and intangible in nature, they collectively represent the ownership of the real property tangible asset.

  • Easements – An easement gives one party the right to use the land of another party for a particular or stated purpose.
  • Mineral rights – Mineral rights represent ownership interest in natural resources such as coal, oil, natural gas, and other precious and non-precious metals which are normally extracted from the ground.
  • Timber rights – Timber rights permit one party to cut and remove trees from the property of another party.
  • Development rights – Development rights represent legal entitlement and ability to develop and improve a parcel of land.
  • Water rights – Water rights usually confer upon the owner of riverfront or shorefront property the right to access and use the adjacent water.

Amortization Methodology

Land Use Rights – Permanent are inexhaustible assets and do not amortize over time. The straight-line amortization method is used for Land Use Rights – Term.

Capitalization Threshold

  • All acquisitions of Land Use Rights – Permanent are capitalized.
  • The capitalization threshold for Land Use Rights – Term is $100,000.

Computer Software

Computer Software Definition

Computer software is the most widely owned type of intangible capital asset. There are two primary types of computer software:

  • Purchased (commercial “off the shelf”)
  • Internally-generated

Purchased Software

Purchased software is commercial software that is purchased “off the shelf” and then placed into service with minimal modification.

The commercial software must have:

  • An estimated useful life of one year or greater
  • A cost that meets or exceeds the capitalization threshold of $100,000.00

When purchasing computer software licenses or similar assets, the capitalization threshold is based on the aggregate or total cost of the purchase. Do not divide the cost by the number of licenses. The cost can include:

  • Purchase software license
  • License fees
  • Testing fees
  • Set-up fees
  • Delivery cost

Record purchased software that meets the above requirements as:

  • SPA class code 307 – Purchased Software
  • Comptroller object 7395 – Computer Software – Capitalized

If the software requires more than minimal modification before placing it into service, evaluate the total initial purchase cost plus the budgeted application development cost to determine if the total initial cost meets or exceeds the $100,000.00 threshold. If the threshold is met or exceeded, the software must be recorded as:

  • Capitalized Computer Software using SPA class code 310 – Customized Software
  • Comptroller object 7395 – Computer Software – Capitalized

Do not capitalize additional development costs unless the cost exceeds the state’s $1 million capitalization threshold for internally-generated software.

Internally-Generated Computer Software

Intangible computer software assets are considered internally-generated if they are:

  • Created or produced by the government’s employees or a third party contractor on the behalf of the state and local government


  • Purchased off-the-shelf software that requires substantial modification before being placed into service.

Internally-generated computer software must have:

  • An estimated useful life of one year or greater
  • A cost of the application development stage activities that meets or exceeds the capitalization threshold of $1 million.

    Note: Application development stage activities include designing the chosen path (including software configuration and interfaces), coding, installation and testing (including parallel processing).

Costs incurred that relate to the development of internally-generated computer software are only capitalized if ALL of the following are met:

  1. Determined the specific objective of the project and the service capacity expected upon the completion of the project
  2. Completion at expected capacity is anticipated and feasible
  3. Demonstrated the intention, ability and presence of effort to complete
  4. Preliminary project stage activities have been completed
  5. Management authorizes and commits to funding the project (for at least the current year in the case of multi-year projects)

GASB 51 presents three stages of development for internally-generated computer software projects. The activities listed below are not comprehensive:

  1. Preliminary Stage — Expense
    • Conceptual evaluation of alternatives
    • Demonstration of intent to complete the project
    • Final selection of alternatives for development of the software
  2. Application Development — Capitalize
    • Design of the chosen path
    • Software is coded, installed and tested (including parallel processing phase)
  3. Operational — Expense
    • Operational software
    • Application training
    • Regular maintenance

The capitalized value of internally-generated computer software includes the direct costs incurred during the application development stage. These direct costs include direct labor comprised of wages and benefits. Physical hardware is capitalized separately according to capital asset guidelines. The direct labor benefits allocation may be based on actual payroll/benefit costs or a reasonable estimation method. Agencies must maintain support for any such calculation.

Capitalization threshold decisions for internally-generated computer software projects are based on the total estimated application development stage costs. Capitalizable activities may occur in different sequences. Apply recognition guidance based on the nature of the activity — not the timing of its occurrence. Capitalize data conversion costs only to the extent determined necessary to make the computer software operational. Otherwise, expense data conversion costs as incurred.

The costs associated with training, project management or business process reengineering are expensed as incurred. These activities do not further the development of the software and do not contribute to placing the software into service.

Document capitalization decisions for internally-generated computer software projects as follows:

  1. Develop a project budget. Do not forget to include an allocation for direct costs and cost overruns.
  2. Isolate activities that will qualify for application development stage capitalization. Do not include hardware purchase costs.
  3. Begin CIP process for capitalizable activities if total estimated capitalizable costs exceed or are near $1 million.

Internally-generated computer software that is completed and placed into service in a single fiscal year should be recorded as:

  • SPA Class Code 308 – Internally Developed Software
  • Comptroller Object 7395 – Computer Software – Capitalized.

For multi-year computer software projects, capitalization costs are tracked in a construction in progress (CIP) account while the software project is ongoing and recorded as:

  • SPA Class Code 090 – Construction in Progress
  • Comptroller Object 7390 – Computer Software – Int Dev – Capitalized.

Upon completion, the software is converted to an internally-generated computer software (SPA class code 308) capital asset.

Note: The CIP balance must be disposed and restated if an internally-generated computer software project:

  • Is suspended prior to completion


  • Upon completion, does not meet the $1 million capitalization threshold.

Software Updates and Upgrades

Costs associated with the minor modification of computer software are generally considered maintenance and are expensed as incurred. Evaluate computer software modifications for capitalization separately from the original software purchase. The modification is identified as either purchased or internally-generated software. Use the same thresholds applied to purchased software and internally developed software to evaluate if the modification is capitalized.

A software modification is capitalized if it meets the $1 million capitalization threshold requirement and any of the following apply:

  • Functionality of the computer software increased — performs tasks it was previously incapable of performing
  • Efficiency of the computer software increased — the level of service provided increased without performing additional tasks
  • Extended the estimated useful life of the software

Cloud Computing Computer Software

Cloud computing installment agreements that are greater than one year are considered intangible capital assets if the total cost meets or exceeds the $100,000 threshold for purchased software (for example — a five year licensing agreement to use the cloud service software).

A monthly subscription or fee is NOT considered an installment agreement and is expensed.

Other Intangible Capital Assets

Other Intangible Capital Assets Definition

Other intangible capital assets include purchased or internally generated patents, copyrights and trademarks. These types of intangible assets should be classified as capital assets if they are acquired or developed for the specific purpose of improving or adding service capacity to operations. To qualify for capitalization, the other intangible capital asset must also have an estimated useful life of one year or greater.

  • A patent is a set of exclusive rights granted by a state or national government to an inventor or an assignee for a limited period of time in exchange for a public disclosure of an invention.
  • A copyright is an exclusive right granted to the owner of a creative work such as a book, movie, photograph, design, computer software or architecture. These rights include the right to make copies, authorized others to make copies, sell and market the work, and perform the work.
  • A trademark is a distinctive sign or indicator used by a business organization or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities.

Amortization Methodology

The straight-line amortization method is used for Other Intangible Capital Assets.

Capitalization Threshold

The capitalization threshold for Other Intangible Capital Assets is $100,000.