Hubbell Policies

2. Internal use software obtained by Hubbell The cost to obtain a “canned” software package (i.e., off-the-shelf software) or software licenses for internal use should be capitalized when the cost eligible to be capitalized exceeds $5,000. Costs to obtain internal use software that do not meet this threshold should be expensed as incurred. Software items or licenses that are individually less than $5,000 in value but are purchased together and are functionally interdependent components of a system or project may be capitalized. Any annual maintenance fees relating to purchased software are not part of the costs to obtain the software and should be expensed as incurred. Computer software purchased from a third party may include several cost elements (i.e., training, maintenance, data conversion fees, rights to future upgrades or enhancements). If multiple elements are present then the cost should be allocated to each element based on the relative fair value of that element and accounted for based on the guidance for software projects, stated above. For example, the portion of cost allocated to the license to use the software is capitalized, while the portion of costs relating to training is not capitalized. 3. When capitalization should begin and end Capitalization of costs should begin when both of the following have occurred • The preliminary project stage is complete, and • Management commits to funding the acquisition of internal use software or funding the software project (an AFE must be approved) and it is probable the project will be completed and the software (whether acquired or developed though a software project) will be used to perform the function intended. Capitalization of costs associated with a software project should end when the project is substantially completed and ready for its intended use. Ready for intended use is defined as when all substantial testing is completed. 4. Amortization of capitalized software Amortization of capitalized software should begin when the software is available for its intended use. Note this may be before all third-party invoices for services to be capitalized have been received. In that case, the amortization of the currently capitalized balance should begin at the time the software is available for its intended use and the capitalized balance subsequently updated to reflect additional invoiced received. Amortization of any additional invoices received should include a cumulative “catch-up” in the first month, so the accumulated amortization is stated as-if amortization began in the period the software was put in service (i.e., the month in which amortization of the first invoices began). Capitalized software should be amortized over the useful life of the software on a straight-line basis over either a three-year period (for rapidly changing technology) or a five year period. The business unit controller will be responsible for approving the amortization period. The unamortized balance of capitalized costs relating to old software that is replaced by new software should be expensed when the new software is ready for its intended use. 5. Impairments of Capitalized Software assets Refer to the Asset Impairment Policy for events that may require capitalized software assets to be evaluated for potential impairment.

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