Final answer:
Costs incurred after the technological feasibility of software is established should be capitalized as an intangible asset, reflecting the future economic benefits the software provides, in contrast to R&D expenses which are expensed as incurred.
Step-by-step explanation:
Costs incurred after technological feasibility is established but before the software is available to customers should be capitalized as an intangible asset. This is because once technological feasibility is confirmed, the software development costs are no longer considered part of research and development expenses, which are typically expensed as they are incurred. Instead, these costs are seen as part of creating a valuable asset that the company will use for future economic benefits. Therefore, this aligns with the general accounting principle that expenses should be matched with the revenues they help to generate. If a company were to expense these costs, it would not properly represent the future benefit the software will provide.
Pharmaceutical firms, for example, may spend substantial amounts over a long period to develop a new drug. Upon achieving technological feasibility, their subsequent costs are an investment towards an intangible asset that will likely provide future benefits, just as costs incurred after establishing technological feasibility of software. Furthermore, the capitalized costs are amortized or depreciated over the software's useful life, reflecting the pattern in which the software helps the company to generate revenue.