Dear All,
The company under audit has purchased an antivirus software, the break up which is as follows
(i) The fixed appliance ( one time purchase) and
To maintain the validity of this appliance, a
(ii) The renewals and maintenance payment is made.
The renewal and maintenance payment has been made for a period of three years.
I am confused over the following issues raised:
The base appliance is worthless without the further renewals - so should it be capitalised or treated as revenue ?
If it is treated as a capital item
The renewals and maintenance support for the base appliance ( made in advance for 3 years) has to be capitalised or treated as prepaid expenditure ?
The company , for sake of depreciation, broken the purchase into two parts, the base applaince written off over the rate at which softwares are written off and the maintenance and renewals( per unit being less than Rs 5000) been written off.
Please provide answer as to the appropriate accounting treatment. Also the basis on which ur answers are based .
CAclubindia
