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Software Development charges as Asset or Expense?

    • 6 posts
    December 8, 2008 10:26 AM EST

    I run a startup software company. We have been developing a propreitory software application since an year and have no income yet. We will be earning license revenues from sale of the software after an year.

     

    For submitting the accounts, our accountant suggested that we show the entire development costs as an asset. What are the benefits of showing it as an asset and showing it an expense? This issue is more understandable with things like computers purchased (the useful life of computers is longer than the financial period, and so they should be treated as assets to spread the expense over several years). But with the product development, it was news to me that the same thing could/should be done. 

     

    Wanted to hear some more opinions as I am not an accounting person, can someone shed some light on the advantages of treating software development charges as expense and as an asset.

     

    Much appreciated.

    • 434 posts
    December 8, 2008 6:01 PM EST
    First, my usual disclaimer:  I don`t know sh*t .

    You actually brought up two questions.

    Are you going to sell the software and walk away from it or are you going to license it and keep control?  You go to the computer store and buy a box containing software for the computer, that`s all you bought - the box.  And a license to use the software inside.

    R&D as an asset lets you depreciate it over the next few years.  If you have no income, then there`s no sense in expensing the costs of development.

    My .01`s worth...

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