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Antivirus software is a prepaid expenses or assets ?

CA Arun Chhajer (GST Faculty @ Ministry of MSME Govt of India) (2813 Points)

18 November 2011

Dear Friends ,

Company purchased Norton Antivirous Software having the validity period of 3 years. Now what willbe the possible treatment -

1) Capitalize under the head softwarre and claim 100% Depreciation OR

2) Fully expenses because no expenses can be deferred OR

3) Book 1/3 in the current year and balance 2/3 will be prepaid expenseswhich will be writeoff in the next 2 year

Please answer alongwith any reference of Accouting Standard or Act if any ???

Thanks & Regards

Arun Chhajer

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13 Replies

Deepak Gupta (CA Student) (15922 Points)
Replied 18 November 2011

Originally posted by : Arun Chhajer
	Dear Friends , Company purchased Norton Antivirous Software having the validity period of 3 years. Now what willbe the possible treatment - 1) Capitalize under the head softwarre and claim 100% Depreciation OR 2) Fully expenses because no expenses can be deferred OR 3) Book 1/3 in the current year and balance 2/3 will be prepaid expenseswhich will be writeoff in the next 2 year Please answer alongwith any reference of Accouting Standard or Act if any ??? Thanks & Regards Arun Chhajer

S. 37(1) : Business Expenditure - Capital or Revenue - Purchase of Anti–virus software

Expenditure incurred on purchase of anti–virus software is of revenue expenditure.

Chambal Fertilisers & Chemicals Ltd. vs. ACIT (2010)

1 Like

Z ( ) (2960 Points)
Replied 18 November 2011

But for accounting purpose provisions of AS-26 should be followed

" The depreciable amount of a software should be allocated on a
systematic basis over the best estimate of its useful life. The amortisation
should commence when the software is available for use."

Therefore you should writeoff within 3 years

3 Like

surender (Manager Accounts) (149 Points)
Replied 19 November 2011

agree with z

1 Like

(Guest)

Originally posted by : Z
	But for accounting purpose provisions of AS-26 should be followed " The depreciable amount of a software should be allocated on a systematic basis over the best estimate of its useful life. The amortisation should commence when the software is available for use." Therefore you should writeoff within 3 years

Concur with this reply........

1 Like

CA. ANKUR JAIN (CA.....) (2800 Points)
Replied 19 November 2011

For Accounting purpose

Write off in threee years

for Income tax

Claim as a revenue expenditure

1 Like

ranjan kumar (CA FINAL) (40 Points)
Replied 19 November 2011

Hi every one,

Dear all i am agreed with the person who clarified the ITA treatment but there is some query from Mr. Z" is purchase of abovementioned software fall within the scope of AS -26 As Intangable assets ,since AS26 REQUIRED THERE must be some controil over right to Sell or transfer to other etc.

Z ( ) (2960 Points)
Replied 19 November 2011

It is software for internal use ,which is part of appendix of AS-26. APENDIX provides the illustrative application of the PRINCIPLES laid down in the STANDARD to internal use of software

"The cost of a software acquired for internal use should be recognised
as an asset if it meets the recognition criteria prescribed in paragraphs 20
and 21 of this Statement"

further para 20 and 21 states

20. An intangible asset should be recognised if, and only if:
(a) it is probable that the future economic benefits that are
attributable to the asset will flow to the enterprise; and
(b) the cost of the asset can be measured reliably.

21. An enterprise should assess the probability of future economic
benefits using reasonable and supportable assumptions that represent
best estimate of the set of economic conditions that will exist over the
useful life of the asset.

There is future economic benefit since the software will provide its support for 3 years.

further it states

13. The depreciable amount of a software should be allocated on a
systematic basis over the best estimate of its useful life. The amortisation
should commence when the software is available for use.

Which in this case is 3 years and should be written off in 3 years (which i mentioned earlier)

OP asked for reference of Accouting Standard , I gave reference of appendix of AS-26

but yes, I should have mentioned that it is appendix to AS

3 Like

Ankit Agarwal (Article) (204 Points)
Replied 20 November 2011

Treat the software as an Asset and if the amount is upto 5000 then write off the entire amount

in the current year only.....

AS PER THE GUIDANCE NOTE ON TREATMENT OF DEPRECIATION FOR COMPANIES

1 Like

CA Rajat Jain (CA) (1677 Points)
Replied 20 November 2011

as 26 should be followed

1 Like

CA Arun Chhajer (GST Faculty @ Ministry of MSME Govt of India) (2813 Points)
Replied 21 November 2011

Thanks to all for clarify my doubt..

Regards

Arun

SHASHI KUMAR CG (CA Final - Waiting for results) (40 Points)
Replied 23 December 2011

Yes AS - 26 should be followed. Depreciation will be charged on asset. Therefore the expenditure should first satisfy the definition of Asset as per AS - 26 to apply the provisions of AS - 6. Otherwise, the treatment should be as per generally accepted accounting principles i.e. by apportioning the expenditure on time proportionate basis.

Nick Peterson (Software Engineer) (22 Points)
Replied 22 June 2018

No doubt, it is compared to the assets, as for the antiviruses, we can easily access our PC or device without any hesitation of viruses, it completely protects our device. And It has a lot of advantages. Quick Heal Antivirus Customer Service will help you to support my answer.