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What is the definition of technological feasibility when a company is internally developing software?

Technological feasibility “is established when the entity has completed all planning, designing, coding and testing” necessary to determine that the product will meet its design specifications, including functions, features, and technical performance specifications.

Technological feasibility is sometimes referred to having a working model (operative software with same language as the product to be sold, not a prototype, and ready for customer testing) completed or a detailed program design (blueprint including specific design code and actual coding and testing of the specific program).

Another way to think about technological feasibility is thinking about it as a “demo” that is ready to be viewed. At this point, this program will be considered and asset on the company’s balance sheet and will become amortizable.

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  • If a company is internally developing software to be sold, when can expenses be capitalized?

    As you can see in the visual below, all expenses incurred prior to achieving technological feasibility should be expensed. Only expenses incurred between technological feasibility and the release of the product for sale should be capitalized. Now, the subjective part is determining when technological feasibility has been achieved. Technological feasibility is achieved when the company has completed the planning, design, coding, and testing phases of product development.