What is one condition under which companies can capitalize software development costs?

Capitalizing software development costs is a specific accounting practice that allows companies to classify certain development expenditures as assets rather than expenses, which can impact the balance sheet and financial reporting. The condition that justifies capitalizing these costs is when the software has reached technological feasibility and is ready for market.

Technological feasibility is a critical milestone in the software development life cycle, indicating that all essential functionality has been defined and is achievable with the current resources and technology. Once this milestone is reached, it signifies that the company can reasonably expect to complete the software and begin generating future economic benefits from it. This allows costs incurred during the development phase to be capitalized and amortized over the useful life of the software rather than being expensed immediately, which could distort the financial statements.

The other conditions do not meet the technical and financial criteria established by accounting standards for capitalizing development costs. For instance, simply having software for internal use does not qualify it for capitalization under certain accounting guidelines. Moreover, waiting until software is fully developed and generating revenue overlooks the importance of the prior technological feasibility development stage. Lastly, linking capitalization to a percentage of assets is not a standard criterion under relevant accounting practices like the applicable GAAP or IFRS standards.