Capitalisation of Internally developed software

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CA Manikandan Raghunath

470 Points Posted on 03 January 2010

A Company has developed a software for its own use over a period of 6 Yrs. Hardwares purchased in relation with the implementation of the software were capitalised in the respective accounting years. However, they have started using the software from 01.04.09. Now my questions are

1) Should they capitalise the expenses (Ex : salary paid to employees engaged in the development of the software) incurred during the past 6 yrs pertaining to the development of the software?

2) Can they obtain copyrights for internally developed software?

Replies (3)

Amir

Learner

4898 Points Posted on 03 January 2010

Dear MRM,

1)UR FIRST QUERY RELATES WITH AS -26, INTANGIBLE ASSETS, IF ALL THE CONDITIONS PRESCRIBED UNDER AS -26 ARE SATISFIED THEN THE EXP. ON DEVELOPMENT OF SOFTWARE CAN BE CAPITALIZED FOR A PERIOD MENTIONED IN THE AS -26...DEPRECIATION AT SLM WILL BE ALLOWED..

2) YES A COMPANY CAN OBTAIN COPYRIGHT FOR INTERNALLY DEVELOPED SOFTWARES

CA Manikandan Raghunath

470 Points Posted on 04 January 2010

But in AS 26 it has been provided that Past year's expenses cannot be capitalised???

Pls Clarify.

Amir

Learner

4898 Points Posted on 04 January 2010

U R RITE BROTHER,

PAST EXPENSES WHICH HAVE BEEN CHARGED TO REVENUE OR PROFIT/ LOSS A/C CANNOT BE CAPITALIZED...

EG:- DEVELOPMENT STARTED IN 2006-07 AND COMPLETED IN 2007-08,

NOW EXPENSES OF 2006-07, ELIGILBE TO BE CAPITALIZED AS PER AS-26 SHOULD BE CARRIED IN BOOKS AS CAPITAL WORK IN PROGRESS INSTEAD OF CHARGING IT TO PROFIT/LOSS A/C

IN CASE ERRORNEOUSLY ELIGIBLE EXPENSES HAVE BEEN CHARGED TO REVENUE IN 2006-07, STILL RECTIFICATION CAN BE MADE IN 2007-08 BY FOLLOWING THE PROCEDURE PRESCRIBED UNDER AS-5 "PRIOR PERIOD ITEMS"

THE STATEMENT U HAVE MENTIONED SIMPLY MEANS "INELIGIBLE EXPENSES"