09 December 2008
If the organisation will be benefited from installing such software for more than 1 year then it should be capitalised . And in case such software gets redundant in near future due to new technology/anticipated market trends then it should be charged to revenue in the same year
As per AS 26, Intangible asset purchased should be accounted at the acquisition cost provided the recognition criteria is satisfied:
Recognition Criteria: a. Whether future economic benefits flow to enterprise? b. Whether cost should be measured reliably?
If the above questions are answerable, Intangible asset can be recognised.
Since in the given case, Cost of the software is Rs.90,000 cost is measurable reliably. See whether the software will provide future economic benefits. If so you can capitalise.
09 December 2008
Pl visit http://www.financialexpress.com/news/software-to-expense-or-capitalise/122903/2. You find the following:
"Application software, purchased off-the-shelf, typically has a useful life of 1-2 years, after which subsequent versions driven by rapid changes in user needs and underlying technology renders it obsolete, thus triggering replacement costs.
There is, therefore, a case for expensing the same. Customised software specifically created for a particular assessee or ERP packages/ modules are typically not replaced in the short or medium term, and, therefore, could grant an enduring benefit to the assessee - these can be construed as capital assets. Systems software is required for making a hardware system functional and should therefore ideally be capitalised.
What is required, in current circumstances, is a clear understanding of the facts of the case and mapping of such facts to the existing taxation statute and principles, judicially defined."
So decide for yourself depending on facts. May be in your case, you have to capitalise.
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