Head of Software Developement
This query is : Resolved
19 February 2009
Dear Sir,
Can you tell me that in Balance Sheet where we can put the Software Development in Assets, I t would be in Fixed Assets of in Current Assets.Please let me know as soon as possible.
Thanks
Rajesh Shukla
Can you tell me that in Balance Sheet where we can put the Software Development in Assets, I t would be in Fixed Assets of in Current Assets.Please let me know as soon as possible.
Thanks
Rajesh Shukla
19 February 2009
Please refer AS 26 Accounting for intangible assets it will give you clear picture about dealing with software development exp.
19 February 2009
Following is the extract of AS 26
Internally Generated Computer Software
1. Internally generated computer software for internal use is developed or
modified internally by the enterprise solely to meet the needs of the
enterprise and at no stage it is planned to sell it.
2. The stages of development of internally generated software may be
categorised into the following two phases:
• Preliminary project stage, i.e., the research phase
• Development stage
Preliminary project stage
3. At the preliminary project stage the internally generated software should
not be recognised as an asset. Expenditure incurred in the preliminary
project stage should be recognised as an expense when it is incurred. The
reason for such a treatment is that at this stage of the software project an
enterprise can not demonstrate that an asset exists from which future
economic benefits are probable.
4. When a computer software project is in the preliminary project stage,
enterprises are likely to:
(a) Make strategic decisions to allocate resources between alternative
projects at agiven point in time. For example, should programmers
Intangible Assets 535
develop a new payroll system or direct their efforts toward
correcting existing problems in an operating payroll system.
(b) Determine the performance requirements (that is, what it is that
they need the software to do) and systems requirements for the
computer software project it has proposed to undertake.
(c) Explore alternative means of achieving specified performance
requirements. For example, should an entity make or buy the
software. Should the software run on a mainframe or a client
server system.
(d) Determine that the technology needed to achieve performance
requirements exists.
(e) Select a consultant to assist in the development and/or installation
of the software.
Development Stage
5. An internally generated software arising at the development stage
should be recognised as an asset if, and only if, an enterprise can
demonstrate all of the following:
(a) the technical feasibility of completing the internally generated
software so that it will be available for internal use;
(b) the intention of the enterprise to complete the internally generated
software and use it to perform the functions intended. For
example, the intention to complete the internally generated
software can be demonstrated if the enterprise commits to the
funding of the software project;
(c) the ability of the enterprise to use the software;
(d) how the software will generate probable future economic
benefits. Among other things, the enterprise should demonstrate
the usefulness of the software;
(e) the availability of adequate technical, financial and other
resources to complete the development and to use the
software; and
536 AS 26 (issued 2002)
(f) the ability of the enterprise to measure the expenditure
attributable to the software during its development reliably.
6. Examples of development activities in respect of internally generated
software include:
(a) Design including detailed program design - which is the process
of detail design of computer software that takes product function,
feature, and technical requirements to their most detailed, logical
form and is ready for coding.
(b) Coding which includes generating detailed instructions in a
computer language to carry out the requirements described in the
detail program design. The coding of computer software may
begin prior to, concurrent with, or subsequent to the completion
of the detail program design.
At the end of these stages of the development activity, the enterprise has a
working model, which is an operative version of the computer software
capable of performing all themajor planned functions, and is ready for initial
testing ("beta" versions).
(c) Testing which is the process of performing the steps necessary to
determine whether the coded computer software product meets
function, feature, and technical performance requirements set
forth in the product design.
At the end of the testing process, the enterprise has a master version of the
internal use software, which is a completed version together with the related
user documentation and the training materials.
Cost of internally generated software
7. The cost of an internally generated software is the sum of the
expenditure incurred from the time when the software first met the
recognition criteria for an intangible asset as stated in paragraphs 20 and
21 of this Statement and paragraph 5 above. An expenditure which did not
meet the recognition criteria as aforesaid and expensed in an earlier
financial statements should not be reinstated if the recognition criteria
are met later.
Intangible Assets 537
8. The cost of an internally generated software comprises all expenditure
that can be directly attributed or allocated on a reasonable and consistent
basis to create the software for its intended use. The cost include:
(a) expenditure on materials and services used or consumed in
developing the software;
(b) the salaries, wages and other employment related costs of
personnel directly engaged in developing the software;
(c) any expenditure that is directly attributable to generating
software; and
(d) overheads that are necessary to generate the software and that
can be allocated on a reasonable and consistent basis to the
software (For example, an allocation of the depreciation of fixed
assets, insurance premium and rent). Allocation of overheads
aremade on basis similar to those used in allocating the overhead
to inventories.
9. The following are not components of the cost of an internally generated
software:
(a) selling, administration and other general overhead expenditure
unless this expenditure can be directly attributable to the
development of the software;
(b) clearly identified inefficiencies and initial operating losses
incurred before software achieves the planned performance; and
(c) expenditure on training the staff to use the internally generated
software.
Internally Generated Computer Software
1. Internally generated computer software for internal use is developed or
modified internally by the enterprise solely to meet the needs of the
enterprise and at no stage it is planned to sell it.
2. The stages of development of internally generated software may be
categorised into the following two phases:
• Preliminary project stage, i.e., the research phase
• Development stage
Preliminary project stage
3. At the preliminary project stage the internally generated software should
not be recognised as an asset. Expenditure incurred in the preliminary
project stage should be recognised as an expense when it is incurred. The
reason for such a treatment is that at this stage of the software project an
enterprise can not demonstrate that an asset exists from which future
economic benefits are probable.
4. When a computer software project is in the preliminary project stage,
enterprises are likely to:
(a) Make strategic decisions to allocate resources between alternative
projects at agiven point in time. For example, should programmers
Intangible Assets 535
develop a new payroll system or direct their efforts toward
correcting existing problems in an operating payroll system.
(b) Determine the performance requirements (that is, what it is that
they need the software to do) and systems requirements for the
computer software project it has proposed to undertake.
(c) Explore alternative means of achieving specified performance
requirements. For example, should an entity make or buy the
software. Should the software run on a mainframe or a client
server system.
(d) Determine that the technology needed to achieve performance
requirements exists.
(e) Select a consultant to assist in the development and/or installation
of the software.
Development Stage
5. An internally generated software arising at the development stage
should be recognised as an asset if, and only if, an enterprise can
demonstrate all of the following:
(a) the technical feasibility of completing the internally generated
software so that it will be available for internal use;
(b) the intention of the enterprise to complete the internally generated
software and use it to perform the functions intended. For
example, the intention to complete the internally generated
software can be demonstrated if the enterprise commits to the
funding of the software project;
(c) the ability of the enterprise to use the software;
(d) how the software will generate probable future economic
benefits. Among other things, the enterprise should demonstrate
the usefulness of the software;
(e) the availability of adequate technical, financial and other
resources to complete the development and to use the
software; and
536 AS 26 (issued 2002)
(f) the ability of the enterprise to measure the expenditure
attributable to the software during its development reliably.
6. Examples of development activities in respect of internally generated
software include:
(a) Design including detailed program design - which is the process
of detail design of computer software that takes product function,
feature, and technical requirements to their most detailed, logical
form and is ready for coding.
(b) Coding which includes generating detailed instructions in a
computer language to carry out the requirements described in the
detail program design. The coding of computer software may
begin prior to, concurrent with, or subsequent to the completion
of the detail program design.
At the end of these stages of the development activity, the enterprise has a
working model, which is an operative version of the computer software
capable of performing all themajor planned functions, and is ready for initial
testing ("beta" versions).
(c) Testing which is the process of performing the steps necessary to
determine whether the coded computer software product meets
function, feature, and technical performance requirements set
forth in the product design.
At the end of the testing process, the enterprise has a master version of the
internal use software, which is a completed version together with the related
user documentation and the training materials.
Cost of internally generated software
7. The cost of an internally generated software is the sum of the
expenditure incurred from the time when the software first met the
recognition criteria for an intangible asset as stated in paragraphs 20 and
21 of this Statement and paragraph 5 above. An expenditure which did not
meet the recognition criteria as aforesaid and expensed in an earlier
financial statements should not be reinstated if the recognition criteria
are met later.
Intangible Assets 537
8. The cost of an internally generated software comprises all expenditure
that can be directly attributed or allocated on a reasonable and consistent
basis to create the software for its intended use. The cost include:
(a) expenditure on materials and services used or consumed in
developing the software;
(b) the salaries, wages and other employment related costs of
personnel directly engaged in developing the software;
(c) any expenditure that is directly attributable to generating
software; and
(d) overheads that are necessary to generate the software and that
can be allocated on a reasonable and consistent basis to the
software (For example, an allocation of the depreciation of fixed
assets, insurance premium and rent). Allocation of overheads
aremade on basis similar to those used in allocating the overhead
to inventories.
9. The following are not components of the cost of an internally generated
software:
(a) selling, administration and other general overhead expenditure
unless this expenditure can be directly attributable to the
development of the software;
(b) clearly identified inefficiencies and initial operating losses
incurred before software achieves the planned performance; and
(c) expenditure on training the staff to use the internally generated
software.
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