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Value of website?

JodieRJodieR Experienced MentorRegistered Posts: 1,002
A client of mine has spent the last 2 years or so developing a website containing reference material. He's hoping to launch the site soon and the material will be avaliable to be purchased by the general public.
Most of the costs incurred in creating the site have been shown in the P&L account by his previous accountant, which i was a little surprised at but after reading UITF abstract 29 I see that this can probably be justified. The problem now is they're having a meeting with their solicitor soon and he's wanting the value of the completed website shown in the balance sheet at the value which it's now worth.
Does anyone have any advice on (a) what basis it should be valued on, and (b) how do I show this in the accounts?
I have warned the client that I'm not an expert on intangible assets and if need be I'll just prepare their books to TB for someone else to complete, so what I'm hoping for is some clear simple advice on the situation, otherwise please let me know if it's a really complicated area in which case I'll do what I can do and then pass it on!

Comments

  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Hi,

    You can only put an asset on the balance sheet if that asset is to contribute to profit generation of the entity. Task force abstract 29 at para 6 does state that:

    .....criteria should be established that ensured that the costs would be capitalised only to the extent that they created an enduring asset and there were reasonable grounds for supposing that future economic benefits in excess of the amounts capitalised would be generated by the website.


    UITF 29 does cite an ordering facility. So for example, if your clients customer base can order goods/services via the website then the costs that are 'directly attributable' to the website can be capitalised.

    If there is no such facility, then they would all have to remain in P&L because no revenue can be generated.

    Regards
    Steve
  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Sorry, if you are going to capitalise then the costs capitalised should be:

    Domain registration;
    Hardware/software to enable the site to become operational;
    Content management systems;
    Interfaces;
    Design costs;
    Content costs.

    In other words any costs directly attributable to the website. Also, show them as an intangible asset (or in the case of hardware within computer equipment).

    The abstract also recognises that 'planning costs' are not to be capitalised.

    Regards
    Steve
  • JodieRJodieR Experienced Mentor Registered Posts: 1,002
    Thanks for replying steve
    The thing is that a lot of the design & content costs haven't been capitalised, I'm thinking that the justification of this is that according to point 13 of UITF 29 'if there is insufficient evidence on which to base reasonable estimates of the economic benfits that will be generated in the period until the design and content are next updated, the costs of developing the design and content should be charged to the P&L as incurred'.
    So I think that as there's no guarentee that this concept will be sucessful (and there's definately no big contracts lined up or anything), all of the content & design costs have gone through the P&L.
    Now that it looks like they have actaully created something that will be capable of generating income should an accounting entry be made to recognise this? Or should the accounts be adjusted?
  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Hi Jodie,

    If it is the case that your client considers the website ordering facility to be commercially profitable, and as such the development costs that were charged to P&L should have, in fact, been capitalised, then you should do a prior year adjustment in accordance with FRS 3 (FRSSE (Jan 2007) para 2.15) if the amount is material. If not, just do a current year adjustment.

    There is a condition in UITF 29 that says there has to be a reasonable expectation that the present value of the future cash flows (income less costs) to be generated by the website must be no less than the amounts capitalised.

    I appreciate it is all guessing games with issues such as website costs and whether they will generate good sales. However if there is still insufficient evidence available on which to base these 'predictions' then they should remain in P&L and any future costs incurred whilst there is still insufficient evidence on which to base reasonable estimates of the income/expenses should be treated the same way.

    Kind regards

    Steve
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    You mention a meeting with the solicitor, what is the purpose of the meeting and indeed the figures to be presented?

    Just prepare some management accounts with the costs capitalised. You do not necessarily have to mess around with the statutory accounts.
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