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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Exacctnt who wrote (30137)	9/27/1999 6:59:00 PM
From: Freedom Fighter	Read Replies (2) \| Respond to of 74651

ExAcctnt, Would it be possible for you to give me a short accounting lesson related to computer software? These are the basics as I understand them: 1. If you are developing software that will eventually be sold, leased etc.., you expense it as R&D until you have a workable product that has passed a certain level of testing. You can then start capitalizing some of the costs. This would be applicable to software companies like Microsoft. 2. If you purchase a software package from an outside vendor you capitalize it. Its value is recorded on the balance sheet. This is applicable to all sorts of businesses and software products. 3. If you code the same software package as above with an in house programming staff the costs are expensed and no asset value is recorded. It is number 3 that I am most interested in and least sure of. It seems to me that there is an inconsistency in accounting for software that is having a negative effect on both book values and reported earnings when software is developed in house. (or vice versa) Is there any way to get a very rough idea about how large these expenditures and assets are for the typical large business? The thing that makes it all controversial in my mind is that as a computer programmer I know that I am often developing business tools that increase worker productivity etc... So it seems that some of it should be capitalized. However, I am often just supporting the existing tool the same way a mechanic might maintain machinery. So some of my work should probably be expensed. Lastly, most of what I develop has very specific business features and in no way would be sellable to another business. It therefore does not support debt the way plant, land, or many other assets might. In many cases it is useless to everyone except the firm that developed it. No one would ever buy it. Trying to relate these issues to business values is quite complex. I'd appreciate any thoughts. Wayne