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how to arrive at software product cost

Jasmine (94 Points)

22 February 2008

Hi Friends!

Can anyone please suggest me ways of treating expenses incurred while delevoping a software.We have developed recently a base ERP Product how should I arrive at that product cost and how it should appear in my financial statements.Plz explain me in detail with the relevant provisions as per co's act.

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7 Replies

Anand (481 Points)
Replied 22 February 2008

first let me know whether you are a software developer or developed a software in house for your company?

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Jasmine (94 Points)
Replied 22 February 2008

Hi Thanx for ur immediate response.Im an accounts executive working for a software development co.We are now in a confusion as how to deal with our initial expenses such as salary paid to our developers,cost of other applications used for development,administration exps etc purely spent for developing our base module.We are under confusion as whether to deal those exps in P&l a/c and show the entire exps as loss incurred during the period or to capitalise the same.Plz help.

Vijay (CA) (254 Points)
Replied 22 February 2008

HI If you are developing in house then all costs directly related for development as well as indirect ciost that is attributable to software will consisits of cost.This cost should be taken till the date of its implementation. And, If you are buying then cost of purchases as well cost till implementation is a cost of software. Pls let me know if require more informatins Regards VIjay

Vijay (CA) (254 Points)
Replied 22 February 2008

HI All expenses as mentioned by you will include ion cost of software not as deductibel revenue expenditure. Thanks VIjay

Anjana Chugh (Chartered Accountant) (73 Points)
Replied 22 February 2008

wont it b treated in same manner as v do for building construction in progress......... first to debit all the expenses under a separate account and den after completion tfr d whole amount in building account? pls clarify..........

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Jasmine (94 Points)
Replied 22 February 2008

Thanx Vijay But i would require more information on the accounting treatment.What should i do with the so arrived cost,how should i account it and where will it appear in my fin reports?

Vijay (CA) (254 Points)
Replied 22 February 2008

HI Yes Anjana is right. First we should book all expenses to Capital work in progress ACCount till date development is not completed and successful implementaion done. Till the date of successful implementaion it will show a Capital work in progress under fixed assets in balance sheet. Thanks Vijay