Websites - capital or revenue?

Dottie

Hi

£8,000 spent on a website for a fitness studio. Should it be capitalised or written off in the P & L?

Have been trying to look this up om the web and am getting conflicting answers.

Many thanks for any replies.

Dottie

PGM

Generally a website is revenue. Think of it as an asset, theres no NRV!

However, if its used for online commerce, its also then your shop, and you can capitalise it.

Thats my understanding

Steve Collings

Hi

UITF 29 is the port of call you need, which you can find here.

PGM

Steve Collings wrote: »

Hi

UITF 29 is the port of call you need, which you can find here.

I read as much as I could... My post as a quick summary still seems valid.

jamesm96

Well, if I remember right from my studies, the definition of an asset is 'a resource which is controlled by the entity as a result of past eventsfrom which future economic benefits are expected.

The website is a resource which the company controls, the past event is the engagement of a web developer and the completion of the website planning process and the future economic benefits are additional sales and enhanced reputation. I reckon they're not going to spend £8k every year on their website (or are they?) in which case the benefits derrived will continue for more than one year past the end of the reporting period (i.e. it's not a 'current' asset).

I'd say it should be capitalised.

PGM

From Steve's link;

"However, there is often substantial uncertainty regarding the viability, useful economic
life and value of a Website. The UITF took the view that, in relation to amounts spent on
the design and content of a Website (paragraph 3(c) and (d)), 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. In the
UITF’s opinion, this would be the case only if the Website was capable of generating
revenues directly, for example by enabling orders to be placed."

Gill Gittings

I remember a similar issue with one of our clients who wanted to capitalise £10k of a website. Steve wrote something on this issue in one of the magazines as well and it's only capital when it generates income for your company so I agree with PGM and the link [but can't disagree with the link as it comes from the horses mouth]. I'd be putting it into the P&L.

jamesm96

PGM wrote: »

From Steve's link;

"In the
UITF’s opinion, this would be the case only if the Website was capable of generating
revenues directly, for example by enabling orders to be placed."

I knew I'd regret not reading it in more detail!

Having thought about it more as well, your point about NRV is an interesting one... how would you value it if you did capitalise?

PGM

jamesm96 wrote: »

I knew I'd regret not reading it in more detail!

But not as much as I regreted capitalising ours and being knocked back by the auditors!

Having thought about it more as well, your point about NRV is an interesting one... how would you value it if you did capitalise?

I believe you then treat it as an intangible asset, and use the e-commerce to argue the future economic benefits, rather than NRV.

Monsoon

I looked at this extensively for a client last year, including the UITF.

They paid a five figure sum for the domain name itself (www.businessname.co.uk). It was capitalised and comes under the intangibles regime. I will always put the ordinary £6 fee (which most people pay) for 2 years for a .co.uk in revenue expense, even though strictly speaking it's an intangible asset. An 'expensive' domain name needs capitalising.

They paid a few grand for website development and their website is capable of generating revenues. This was capitalised as tangible and claimed capital allowances. This is akin to a "shop window." The website was estimated to have a useful life of 4 years before needing a redesign and so was capitalised/ depreciated accordingly. The "cost" of the asset was the cost of the development work.

Subsequent repairs and maintenance are revenue expenditure, but a significant redesign would be capital again.

jamesm96

PGM wrote: »

But not as much as I regreted capitalising ours and being knocked back by the auditors!

Ahh. That's a pain!

PGM wrote: »

I believe you then treat it as an intangible asset, and use the e-commerce to argue the future economic benefits, rather than NRV.

But if we value at < cost and NRV, and there's £nil NRV...? I seem to remember, as well, that in order to value an intangible asset there has to be an easily ascertainable value based on the going rate in an open market... perhaps I'm just thinking about internally generated intangibles, though, rather than those which result from external costs.

deanshepherd

jamesm96 wrote: »

But if we value at < cost and NRV, and there's £nil NRV...?

Why would you value an asset at lower of cost and NRV?

jamesm96

deanshepherd wrote: »

Why would you value an asset at lower of cost and NRV?

You're right. That's only if you're revaluing assets!

I have GOT to get my kids sleeping better.