Developing Software – Can it be classed as an Asset/Capital Expenditure?

0
0

My company is developing bespoke Software for a client, can this be treated as a Asset? They will retain the rights and hopefully be able to resell in the future.

Marked as spam
Posted by al-fn (Questions: 36, Answers: 44)
Asked on 6 June 2020 11:35 am
4 views
0
Private answer

A company can classify costs as CAPEX (Capital Expenditure) when it is probable that these costs will generate future economic benefits, and if the costs can be measured reliably.

Software development costs are usually upfront with long term benefits, therefore can be capitalised. The costs incurred in the development of software programs are Research and Development costs. According to IAS38, all expenses incurred in the Research phase would be expensed. For the Development costs to be capitalised your company has to demonstrate both:

1) technological feasibility and;

2) a probability of its commercial success.

Technological feasibility means that the company should have established that the product can be successfully produced. The planning, designing, coding, and testing is completed. The company’s intention and ability to sell the program is established.

If your company retains the rights/copyrights of the software and obtains control over the software, this would support capitalisation.

Costs must be direct to software development such as the software developers’ compensation. The capitalised software will then be amortised over a specified time period.

Marked as spam
Posted by al-fn (Questions: 36, Answers: 44)
Answered on 6 June 2020 11:36 am