SAP implementation cost

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anil kalia (Querist)

28 May 2010 A public limited company is implementing SAP and is treating SAP implemtation as a cost center and is debiting all expenses related to the SAP implementation such as employee travel, welfare, incidentals to SAP WIP Account to be captalised.

Should such expenses be treated as part of the cost to be amortised as per AS 26 or should be charged off to revenue.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)

29 May 2010 SAP implementation cost is to be capitalised as Intangible asset as per AS 26

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anil kalia

anil kalia (Querist)

30 May 2010 Thanks for the reply. Please validate your opnion with reference to the relevant clause of the Accounting standard 26.

Please note, as per Appendix A attached to AS 26, provision 12 says :

Subsequent expenditure on software after its purchase or its completion should be recognised as an expense when it is incurred unless:
(a) it is probable that the expenditure will enable the software to generate future economic benefits in excess of its originally assessed standards of performance; and

(b) the expenditure can be measured and attributed to the software reliably.

In my opnion, the cost incurred for implemention of SAP will not enable the software to generate future benefits in excess of its originally assessed standards of performance. Hence it needs to be charged to Profit and Loss Account.

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