Software development for further sale

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vineet (Querist)
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19 September 2016 Hi Members,

Our Company is developing a software to be launched and sold in market from Oct'2016. The development of this software began on July'2015 and specific cost were majorly the developers salary. I want to know the accounting treatment of these salaries for the year 2015-16 . Whether to capitalize it or expense it out ? And whether it is to shown as a WIP inventory or treat it as an intangible asset? Please guide me

Amol S Joglekar

Amol S Joglekar (Expert)
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19 September 2016 it is always a tricky situation.....
if your is a software developement business and you are doing it for quite some time now...you can debit the salary to the respective years expenses, under income tax
Under Accountancy, you can show the same to be Deffered Revenue Expenditure...As Asset and amortise the same over the period of life of the software sale...(This is really difficult to guess as to how many years the software developed by you gets sold.....)

vineet

vineet (Querist)
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19 September 2016 Thanks Anmol.
I heard that the concept of Deferred Revenue and capital expenditure is over. So can i show this in company's financial statement?
This won't be an inventory for sure then? and how do I make the Income Tax authorities show this as an expenditure when I am showing this to MCA as an Asset?
Appreciate your help anmol. Please guide

Amol S Joglekar

Amol S Joglekar (Expert)
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19 September 2016 you can show it by way of computation of income, to the income tax authorities.
Accountancy record and Income computation may not go hand in hand.....there are many items which are different in accountancy and in income tax....(e.g. depreciation)

vineet

vineet (Querist)
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19 September 2016 Okay understood about Income Tax computation, but what about accounting treatment? I can go ahead with Deferred Revenue Expenditure?

Amol S Joglekar

Amol S Joglekar (Expert)
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19 September 2016 yes, you can very well show it as deferred revenue...since you have incurred the salary expenses in the year 2015-16... and the product is getting ready for sale in Oct 2016.
For the year ended 31/03/2016, you can show the same as deferred revenue

vineet

vineet (Querist)
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19 September 2016 Thank You sir. Will do that

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