how to arrive at software product cost

first let me know whether you are a software developer or developed a software in house for your company?

Hi Thanx for ur immediate response.Im an accounts executive working for a software development co.We are now in a confusion as how to deal with our initial expenses such as salary paid to our developers,cost of other applications used for development,administration exps etc purely spent for developing our base module.We are under confusion as whether to deal those exps in P&l a/c and show the entire exps as loss incurred during the period or to capitalise the same.Plz help.

HI If you are developing in house then all costs directly related for development as well as indirect ciost that is attributable to software will consisits of cost.This cost should be taken till the date of its implementation. And, If you are buying then cost of purchases as well cost till implementation is a cost of software. Pls let me know if require more informatins Regards VIjay

HI All expenses as mentioned by you will include ion cost of software not as deductibel revenue expenditure. Thanks VIjay

wont it b treated in same manner as v do for building construction in progress......... first to debit all the expenses under a separate account and den after completion tfr d whole amount in building account? pls clarify..........

Thanx Vijay But i would require more information on the accounting treatment.What should i do with the so arrived cost,how should i account it and where will it appear in my fin reports?

HI Yes Anjana is right. First we should book all expenses to Capital work in progress ACCount till date development is not completed and successful implementaion done. Till the date of successful implementaion it will show a Capital work in progress under fixed assets in balance sheet. Thanks Vijay

To arrive at a software product cost, you need to classify expenses as per accounting standards. All direct software development cost (coding, testing, design, implementation) incurred during the development phase can be capitalized, while research and preliminary stage costs are expensed. The capitalized amount will then appear in financial statements as an intangible asset and amortized over its useful life. 

Indirect overheads should only be included if directly attributable. Firms like CONTUS Tech follow this segregation to ensure compliance with the Companies Act and accurate reflection of product valuation in financial reporting.