Video Game Development - Application Development Stage Capitalization (Post-Feasibility)
Capitalizing internal game development costs — programmer salaries, artist wages, and directly attributable overhead — after technological feasibility is established, as an intangible asset under ASC 350-40 / IAS 38.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Game Development Costs - Capitalized Intangible Asset | Asset (+) | 28,500,000.00 | - |
| Salaries Payable / Cash (Capitalizable Developer & Artist Wages) | Liability (+) / Asset (-) | - | 28,500,000.00 |
💡 Accountant's Note
After technological feasibility (the critical threshold), all direct costs of developing the game are capitalized: programmer salaries (coding gameplay, engine, UI), artist wages (character models, environments, textures, animation), QA testing specific to the game, and allocable overhead. Not capitalizable: general studio overhead not attributable to specific projects, G&A, and post-release costs (patches, balance updates). Under IAS 38, the capitalization criteria are: technical feasibility, intention to complete, ability to use/sell, probable future economic benefits, adequate resources, and ability to measure costs reliably. For IFRS studios, all six criteria must be met simultaneously before capitalization begins — often a later trigger than US GAAP.
Practitioner & Systems Framework
💻 ERP Architecture
The capitalized development cost must be tracked at the individual game title level. Labor capitalization = (hours worked on post-feasibility development × hourly fully-loaded cost rate). Fully-loaded rate includes direct salary + benefits + payroll taxes. Third-party development costs (outsourced art studios, middleware licenses, motion capture) are capitalizable when directly attributable to post-feasibility development. License fees for game engines (Unreal Engine, Unity) may be expensed per the license agreement or amortized depending on the nature of the license.
⚠️ Audit Flags
Auditors test: (1) consistency of the feasibility milestone documentation across projects, (2) capitalization rate validation (hours × rates for all developers on the project), (3) whether post-feasibility overhead allocation is reasonable and consistently applied, (4) the treatment of QA costs (pre-release QA is capitalizable; post-release patch testing is an expense), and (5) whether the game is still commercially viable (impairment trigger if development is being cancelled or significantly scaled back).
📄 Required Documentation
Technological feasibility milestone evidence (working prototype documentation, internal approval), time tracking records by employee and project for post-feasibility period, loaded cost rate calculation, third-party development cost invoices, game engine license agreement analysis, impairment assessment for each project in development.
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