BUILDINGS AND SITES
802.9 - INTANGIBLE ASSETS POLICY
RESCINDED, 6/20/22
I. Definition of Intangible Assets
A. Intangible Assets
Intangible assets are assets that are:
(1) Identifiable – Either the assets:
(a) Can be separated or divided from the District and sold,
transferred, licensed, rented or exchanged; or
(b) Arose from some legal right (i.e., a contractual right),
regardless of whether those rights are separable or
dividable;
(2) Lacking physical substance;
(3) Non-financial in nature – The assets are not in a monetary form,
such as cash or investment securities; and
(4) Possessing a useful life that extends beyond a single financial
reporting period.1
Examples of intangible assets include the following:
(1) Easements or land use rights (i.e., water rights, timber rights and
mineral rights);
(2) Patents, trademarks and copyrights; and
(3) Computer software or websites that are purchased, licensed or
internally generated.
Examples of assets that are not intangible assets for purposes of this Policy
include only the following:
(1) Assets acquired or created primarily for purposes of obtaining
income or profit, as these are considered investment assets;
(2) Assets from capital lease transactions reported by lessees, except
licensing agreements to lease commercially available computer
software; and
(3) Goodwill established or created between the District and another
entity.
B. Outlays Associated with Internally Generated Intangible Assets
Intangible assets that are generated or created internally likely have outlay
expenses associated with the generation or creation. Intangible assets are
considered to be generated or created internally if they are:
1This requirement also applies to an intangible asset in the form of a computer software license purchased or renewed, and the useful life must extend beyond a single reporting period in order for the computer software license to be capitalized.
(1) Created by the District;
(2) Created by a third-party contracted by the District; or
(3) Acquired by the District from a third-party and require more than
minimal incremental effort on the part of the District to begin to
achieve the expected level of service capacity.
C. Outlays Associated with Internally Generated Computer Software
Computer software that is generated or created internally likely has outlay
expenses associated with the generation or creation. Computer software is
considered to be generated or created internally if it is:
(1) Developed by the District;
(2) Developed by a third-party contracted by the District; or
(3) Commercially available software acquired, purchased or licensed
by the District from a third-party that is modified using more than
minimal incremental effort before being put into operation.
II. Measuring of Intangible Assets
A. Threshold for Capitalization of Intangible Assets
All intangible assets at or above $50,000 must be reported for the audit and Certified Annual Report (CAR), all other intangible assets are excluded. The threshold is to be applied to individual intangible assets and shall prohibit the aggregation of item, including intangible assets and outlays, to meet the threshold.2
B. Recognition of Intangible Assets
The District shall record individual intangible assets exceeding the threshold
amount outlined in the District’s intangible asset capitalization threshold policy as
follows:
(1)Intangible assets received in an exchange transaction or purchased
shall be recorded at actual historical cost, which includes direct
costs, and excludes indirect costs;
2 With intangible assets in the form of computer software licenses purchased or renewed, each individual license much be accounted fo separately and all licenses cannot be aggregated for purposes of measuring whether the assets have exceeded the threshold.
(2) Intangible assets in the form of business activities and enterprise
funds received in an exchange transaction or purchased shall be
recorded at actual historical cost, which includes direct costs,
specifically capitalized interest and ancillary charges, and excludes
indirect costs; and
(3) Intangible assets received in a non-exchange transaction or
donated shall be recorded at estimated fair market value at the time
of acquisition, which requires implementation of a rational method
to determine or estimate the value at which the asset could be
exchanged between willing parties not involved in a forced sale.
(4) Intangible assets reported retroactively3 shall be recorded at actual
historical cost,4 regardless of whether the asset is fully amortized
prior to June 30, 2009. If an intangible asset reported retroactively
is fully amortized prior to June 30, 2009, the District shall record the
value of the intangible asset separately from the value of the
amortization.
III. Accounting for Intangible Assets
A. Intangible Assets
Intangible assets exceeding the threshold shall be accounted for as capital
assets. Therefore, all financial requirements concerning capital assets, including,
but not limited to, all accounting and reporting requirements, such as those
associated with recognition, measurement, presentation and disclosure, shall be
followed.
B. Outlays Associated with Internally Generated Intangible Assets
Outlays from internally generated intangible assets exceeding the threshold shall
not be accounted for as capital assets until they are identifiable and the
“specified conditions criteria” have occurred (see below). Outlays exceeding the
threshold not meeting these requirements and/or incurred prior to these criteria
occurring shall be accounted for as an expense when the expense is incurred.
Outlays from internally generated intangible assets exceeding the threshold shall
be accounted for as capital assets if they occur after such time as:
(1) The assets are identifiable – See the definition outlined in Section I
of this Policy; and
(2) The “specified conditions criteria” have occurred, as follows
3 Reference Section VI of this Policy for the retroactive reporting of intangible assets.
4 If actual historical cost cannot be determined for intangible assets acquired prior to June 30,
2009, due to lack of sufficient records, estimated historical cost shall be used
(a) 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 completion of the project;
(b) Demonstration of the technical or technological feasibility for
completing the project so that the intangible asset will
provide its expected service capacity; and
(c) 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.
C. Outlays Associated with Internally Generated Computer Software
Outlays from internally generated computer software developed by the District or
by a third-party contracted by the District exceeding the threshold shall be
accounted for as follows:
(1) During the preliminary project stage, all outlays exceeding the
threshold shall be accounted for as an expense when the expense
is incurred. The preliminary project stage involves the conceptual
formulation and evaluation of alternatives, the determination of the
existence of needed technology and the final selection of
alternatives for development of the software.
(2) During the application development stage, outlays that occur before
the specified conditions criteria have occurred and exceed the
threshold shall be accounted for as an expense when the expense
is incurred; outlays that occur after the specified conditions criteria
have occurred5 and exceed the threshold6 shall be accounted for as
capital assets; and outlays that occur after the computer software is
substantially complete and operational and exceed the threshold
shall be accounted for as an expense when the expense is
incurred. The application development stage involves the design of
the chosen path, including, but not limited to the purchase of the
5 The specified conditions criteria are considered to be met for internally generated computer
software developed by the District or a third-party contracted by the District when the preliminary
project stage is complete and the Board authorizes and/or commits to funding the development of
new computer software.
6 In determining whether the outlays exceed the threshold, each outlay shall be accounted for
separately and no outlay shall be aggregated with any other outlay for purposes of measuring
wither the outlays have exceeded the threshold. For example, the initial purchase of the
computer software or license and the modifications made to the computer software or license
should be accounted for separately and should not be aggregated for purposes of measuring
wither the outlays have exceeded the threshold.
software or license;7 the software configuration and the software
interfaces; the coding; the installation to hardware; the testing; any
minor modifications made to the software before it is placed into
operation;8 and the data conversion, if such was deemed necessary
in order to make the software operational.
(3) During the post-implementation and operation stage, all outlays
exceeding the threshold shall be accounted for as an expense
when the expense is incurred. The post-implementation and
operation stage includes the data conversion, if such was not
deemed necessary during the application development stage in
order to make the software operational; the application training; and
the software maintenance.
Outlays from internally generated computer software extensively modified by the
District or by a third-party contracted by the District exceeding the threshold shall
be accounted for as follows:
(1) All outlays from the modification of computer software exceeding
the threshold shall be accounted for as capital assets if the one of
the following conditions exist:
(a) The modification causes an increase in the functionality of
The software (the software is able to perform tasks that it was
previously incapable of performing);
(b) The modification causes an increase in the efficiency of the
software (the software offers an increased level of service
without the need for an increased performance of tasks); or
(c) The modification extends the estimated useful life of the
software.
(2) All outlays from the modification of computer software exceeding
the threshold shall be accounted for as an expense when the
expense is incurred if none of the above conditions exists.
IV. Amortization of Intangible Assets
In amortizing an intangible asset that is capitalized because it exceeds the
threshold and meets the requirements above,9 the following general rules shall
apply:
(1) The useful life of an intangible asset generally shall be estimated.
Therefore, the intangible asset has a determinable useful life, even
if it must be estimated, and shall be amortized using the straightline
method.
7 The purchase of the computer software or license shall be treated as an outlay that shall be capitalized.
8 Making minor modifications to the computer software or license shall be treated as an outlay
that shall be capitalized.
9 This includes intangible assets that were in existence from July 1, 1980, through June 30, 2009,
and must be retroactively reported
(2) The useful life of an intangible asset that arises from and is limited
by contractual or other legal rights shall not exceed the period of
the intangible asset’s service capacity provided under the contract
or other legal provision. Therefore, the intangible asset has a
determinable useful life, even if it must be estimated, and shall be
amortized using the straight-line method.
(3) The useful life of an intangible asset that is not limited by any legal,
contractual, regulatory, technological or other factors shall be
indefinite. Therefore, the intangible asset has no determinable
useful life and shall not be amortized.
In considering changes in circumstances that affect the amortization of an
Intangible asset, the following rules shall apply:
(1) An intangible asset that arises from and is limited by contractual or
other legal rights shall take into consideration contract renewal
periods for purposes of determining its useful life and its
amortization schedule only if the following requirements are met.
(a) There is evidence that the District will seek and be able to
achieve contract renewal; and
(b) The anticipated outlay for contract renewal is nominal in
relation to the level of service capacity obtained by the
contract renewal.
(2) An intangible asset that was once not limited by any legal,
contractual, regulatory, technological or other factors, but now is
limited by such factors due to changes in conditions, shall be tested
for impairment10 because the expected duration of the useful life of
the asset has changed, and then the following rules shall apply:
(a) If an impairment is determined not to exist, the intangible
asset has a determinable useful life and shall be amortized
using the straight-line method.
(b) If an impairment is determined to exist, the following must
occur:
(i) The loss due to the impairment shall be accounted for
as a loss;
(ii) The intangible asset has a useful life that must be
estimated and is determinable; and
(iii) The carrying value, or the value remaining after
accounting for the impairment, shall be amortized
using the straight-line method over the remaining
estimated useful life.
10 Internally generated intangible assets and computer software commonly experience impairment with development stoppage, including, but not limited to, stoppage of development of computer software due to changes in the priorities of manage
V. Selling or Disposing of Intangible Assets
In selling or disposing of intangible assets, the District shall calculate and report a
gain or loss on the sale or disposal. The gain or loss shall be calculated by
subtracting the net book value, which consists of the historical cost less any
accumulated amortization, from the net amount realized on the sale or disposal.
VI. Application of Policy
The requirements of this Policy shall apply to all financial statements covering
periods beginning after June 30, 2009. Consequently,
The requirements of this Policy shall apply retroactively to intangible assets that
were in existence from July 1, 1980, through June 30, 2009.11 However, the
following intangible assets shall not be retroactively reported as capital assets:
(1) Intangible assets considered to have an indefinite useful life as of
June 30, 2009;
(2) Intangible assets considered to be internally generated as of June
30, 2009;
(3) Outlays from internally generated computer software incurred in the
application development stage on or prior to June 30, 2009;12
(4) Any intangible asset held by a “Phase 3” District, characterized as
such for purposes of implementing GASB Statement 34.
11 This includes computer software purchased prior to June 30, 2009, that is currently still in use.
12 Reference Section III, Subsection C of this Policy for the accounting of outlays from internally generated computer software incurred in the application development state after June 30, 2009.
13 For the purposes of implementing GASB Statement 34, WACO is considered a Phase III District.
Approved:
Reviewed: 2/15/16
Revised: