Whether Capital or Revenue Expenditure ?

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Dear Friends,
I have question that, if a company is purchased a computer anti-virus software whos validity is 1 year and after 1 year, company renews that software for future benefit. If software is not renewed, software becomes unusable. So, the amount paid on purchasing new software is capitalized but what about renewal charges paid for upgrading or making usable for that software?

Most welcome for ur valuable replies.

Thanks & Regards;
Paresh Bhagwat
:)
Replies (5)
I want more information about service tax other sales tax matter

please send me detail
Hi,

Capital items provide benefits for more than one year ...... hence capitalized and expensed in the form of depreciation over the years of useful life.

Antivirus software purchased and used for a year after which it is no longer usable would be Revenue in nature. The renewal would be expensed in the year of renewal. Similar treatment as a Magazine subscription.

However note that any amount paid in the form of deposit should not be expensed. (if it is refundable!!)
I think as the the software is usable for one year and become useless if not renewed, so the cost of that should be treated as revenue expenditure.
Similrly the benifit of renewal is for one year so the same also to be treated as revenue expenditure for that year.

Thanks/Regards
PURCHASE OF A SOFTWARE IS A CAPITAL EXPENDITURE. BUT RENEWAL IS NOT CAPITAL EXPENDITURE. REASONS ARE AS FOLLOWS
1. IT DOES NOT INCREASE THE CAPACITY OF THE SOFTWARE. IN OTHER WORDS IT DOES NOT ADD FURTHER ADVANTAGE.
2.ANY EXPENDITURE FOR MAINTENANCE OR RENEWAL IS REVENUE EXPENDITURE.
Purchasing software is revenue expenditure because it will be unusable if not being renewed. And renewal expenditure is also revenue expenditure without any doubt and should be charged against PL account on that year because it will not add up any new advantage to that software. Software will become valueless after one year because all the expenses already been charged in PL account. So now the renewal expanses will add up value on that value less software which should also be charged like revenue expenses.


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