Accounting Of ERP

This query is : Resolved

Gaurav Garg (Querist)
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13 January 2009 ABC ltd. purchased an ERP package from Xyz in the year 2008. Entire package has 10 different modules like pay roll, accounting (for financial Accounting) stores, merchandising, job-work sales & stock accounting etc. Each module will take at least 6 to 8 months to customized & developed different reports. Vendor is customizing the different module one by one. On the completion of one module he takes up next module for implementation & customization. Vendor is customizing implementing different module with the help of his team of 4 persons & with the help of staff members of the ABC ltd.
Vendor’s billing pattern is as follows:-

i) One sales invoice he raises for complete ERP package and charge the Vat &/or CST accordingly and;
ii) Another monthly bill he raises for the implementation & customization of particular module.

My query is that:-

(1) Should the ABC ltd. capitalize the customization & implementation monthly bill
or treat it as the revenue expenditure.
(2) Should it capitalize the software module wise & claim the depreciation accordingly since the individual module can be put to use independently also.
(3) Should ABC ltd. capitalize the fist bill as “SOFTWARE WIP” till the entire package gets customized because the package will be fully utilized after the lapse o 3 to 4 years

Deepak Agrawal

Deepak Agrawal (Expert)
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23 January 2009 COST WILL BE CAPITALIZED. ONCE ABC LTD WILL GIVE OK TO ERP VENDOR & IT WILL BE STARTED USING, COST WILL BE CAPITALIZED.

SAP ERP WHOSE COST RUNS INTO CRORES ARE TREATED IN ABOVE WAY...

(UR 3RD OPTION IS RIGHT. DEPRECIATION CAN BE CHARGED OVER MORE YEARS AS COST INVOLVED IS HIGH)