Software as a fixed asset?

Chinless Wonder

Straw poll time ....

We bought SAGE this year - cost £1400. I would automatically capitalise this as I see it as something we will use to help run the business for the next 4-5 years at least, and it's a material amount of money. Our accountant disagrees due to its intangible nature/ "you couldn't sell it on after you were finished with it".

Thoughts please?

Monsoon

I was under the impression expensive software that would last more than a year gets capitalised. It's just an intangible fixed asset as opposed to a tangible one. even if you can't sell it on, it still costs over a certain amount and will last over a certain number of years. If you google search for it, i am sure you will get lots of responses, particularly off AWeb.

NeilH

Hi

I agree with Monsoon, it's capital. Capitalisation has nothing to do selling the asset onwards, it's all about spreading the cost over the life of the asset.

If this isn't the case then some of the companies I've worked for and the one I currently work for will have to make a rather substantial adjustments to their balance sheets! I'm pretty sure the auditors would have had an issue too.

Neil

Chinless Wonder

Thanks folks. That's what I thought! and I was going with my gut instinct, it felt like the right thing to do. Our accountant is quite old fashioned, and I'm wondering if this is a sign of the difference between "young" and "old" thinking.....

Good idea to see what the auditors say! Not that I'm looking for an "I told you so", of course..... :-)

Bluewednesday

We don't capitalise it as we pay a yearly fee for it which includes all the upgrades, it's difficult to say how long you will use it for as they upgrade it every year which you might get. Might that be what your accountant is thinking of?

Although having said that I agree exactly with Neil, the capitalisation/depreciation is spreading the use of the asset.

NeilH

Hi

We tend to capitalise the initial cost of software then charge any support/licence fee in the period/s it covers (usually through pre-payments). Sometimes the initial purchase will include both, so it gets split between revenue expense and capital.

A good example is our payroll, the initial cost was capitalised over five (I think) years, then the annual licence and support fee is charged through prepayments.

Neil

Bluewednesday

Fully agree in your case Neil, I think the only reason we don't is that the software is replaced every year.

PGM

Chinless Wonder wrote: »

Thanks folks. That's what I thought! and I was going with my gut instinct, it felt like the right thing to do. Our accountant is quite old fashioned, and I'm wondering if this is a sign of the difference between "young" and "old" thinking.....

Good idea to see what the auditors say! Not that I'm looking for an "I told you so", of course..... :-)

Worth checking your capitalisation policy, if you have one. We've uped ours to 2k, so avoid capitalising much of the IT equip we used to.