Software Expenditure

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Anil (Querist)
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23 April 2008 Please let me know for whether the following is to be capitalised or expensed, if to be capitalised duration over which depreciation is to be charged and the head under which it is to be capitlised,the reason for capitlaization. Note that the software can be used for any number of years.

1)Software bought for Accounting and Administraion.The source code remains with the seller.

2)Software bought to develop other software.The source code remains with the seller.

3)Software bought to run a machinery.The source code remains with the seller.

4)Software developed for a particular customer but not sold yet.The software is customised to his needs and only the customer can use it.What if a)Customer is sold the source code b)The source code remains with seller.

5)Software developed meant for Sale ( Not meant for any particular customer). There is only one copy of the software. Copies of it are made and sold to customers as and when demand arises.The source code remains with seller. If you say this is inventory -just by taking another copy of the software and keeping it ready, will my inverntory value double?

CA Shailesh +91 9393926464

CA Shailesh +91 9393926464 (Expert)
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23 April 2008 Sir, from whose point of view u r asking the query? I mean to say r u asking the query

a)from the view point of purchaser by virtue of its acquistion cost

or

b)from the view point of seller by virtue of its development cost

However, Para 10 of AS 26 says:

In some cases, an asset may incorporate both intangible and tangible elements that are, in practice, inseparable. In determining whether such an asset should be treated under AS 10, Accounting for Fixed Assets, or as an intangible asset under this Statement, judgement is required to assess as to which element is predominant. For example, computer software for a computer controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as a fixed asset. The same applies to the operating system of a computer.Where the software is not an integral part of the related hardware, computer software is treated as an intangible asset.

Anil

Anil (Querist)
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23 April 2008 Dear Mr.Shailesh,

Thanks for your response.

The above question in some cases is from the point of buyer . And in some other cases from the point of Seller. Please refer below to know from whoes point of view the question is being asked.

1.Buyer

2.Buyer

3.Buyer

4.Seller

5.Seller

Coming to Para 10 of AS 26 which you have quoted :

I have no doubts regarding fixed Asset or Intangible Asset. My doubt is regarding whether to capitalise,duration of depreciation and reasons for capitalising and how you determine the duration of depreciation.

Note that the software can be used as long as one wants to use it.

I request you to answer the question on case to case basis.

Thanks

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K V Subba Rao

K V Subba Rao (Expert)
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23 April 2008 Pl. visit

http://www.caclubindia.net/Judiciary/judiciary_detail.asp?judiciary_id=352

Anil

Anil (Querist)
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23 April 2008 Thank you very much Sir.

The link you mentioned was of great help in resolving my issues No.1 to No.3 (From the point of view of buyer).

However the link does not address the issues I have mentioned in question No.4 and 5(From the point of view of seller).

I request you to kindly respond to question no.4 and 5

Thanks.