Capitalization of software cost

What is the expected period of rendering of services to that client? That period is the useful life of the software or if there is a shorter useful life than the period of rendering the service, then that should be considered as the useful life of the software. (ie, license period/ obscolescence expectation etc). And if it is agreed between the client and your organisation, then we can claim the cost of the asset from them. Otherwise, you can apportion the cost over the useful life of the software and include the same in the cost and charge it in every bill on a proportionate basis.

But the basic theory of amortisation is based on the asset and the useful life of the software expected.  

Originally posted by : Nithin Chettoor
	What is the expected period of rendering of services to that client? That period is the useful life of the software or if there is a shorter useful life than the period of rendering the service, then that should be considered as the useful life of the software. (ie, license period/ obscolescence expectation etc). And if it is agreed between the client and your organisation, then we can claim the cost of the asset from them. Otherwise, you can apportion the cost over the useful life of the software and include the same in the cost and charge it in every bill on a proportionate basis. But the basic theory of amortisation is based on the asset and the useful life of the software expected.

Nithin, Continuing from my last post I have a broder question here.

We have multiple group companies to which we work as service provider for SW and ME related stuff. To carry out these services, we keep buying certain software with explicit approval from these companies. Currently, our accounts section bill the complete cost of SW to the respective companies and expense it off in the books rather than capitalizing them and amortizting it over the life of the asset. There contention is that, if in future that particular company stop taking services from us, how we are going to recover the cost. Not very much sure with this logic.

Next question which arise is that, if our client company is paying the full value of the software in one go, should they capitalizing this cost in there books or not?

Please help.