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Accounting treatment of Computer Licence

Hi,

Can anyone advise how a licence should be treated. It is renewable after one year. It is for checking postcodes while sales calls are being made. Can this be depreciated.

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23rd Jan 2013 14:21

Eh?

It sounds like an annual software licence cost. Over how many years would you depreciate it?

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23rd Jan 2013 15:09

its revenue not capital

PL the lot

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23rd Jan 2013 15:18

How much is the renewal?

If the renewal cost is the same as the initial license then I have to go with Shirley above.

If the renewal is only a fraction of the initial license fee then it may be worth depreciating the initial fee over some years (3, 5, whatever is appropriate and conforms to the existing Capital Assets accounting policy for this client - if they haven't got one then de-facto you are going to create one).

Materiality. To an extent this depends on the size of the business, however, even for the smallest of businesses, with an initial fee of say a few hundred quid and then renewal fees of say, £50 then it may not be worth the effort of recording this as an asset and then depreciating it. Of course it may be that writing the whole lot off in one year will be a waste of potentially deductible expenses if the client is not profitable.

If the amounts are larger then capitalisation may be appropriate, however, even for middling organisations (say a primary school) assets of say, £10k or less will not be capitalised (though they will be, or at least should be, kept on a register) - but then they (state schools) are not concerned with tax but with keeping track of their assets.

There, and I didn't mention Land Value Tax, Henry George or Steve Keen once.

 

 

 

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By jndavs
01st Feb 2013 12:46

Is it an asset? (FRS 5)

I'm with carnmores P&L gets my vote.

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01st Feb 2013 12:46

Prepayment?

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By jndavs
01st Feb 2013 13:00

Prepayment?

Is there a future service / ecomonic benefit being provided?

Is the licence refundable?

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01st Feb 2013 12:59

"It is for checking postcodes

"It is for checking postcodes while sales calls are being made"

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By jndavs
01st Feb 2013 13:12

Prepayment?

Assets and charges that can be time apportioned are not quite the same thing.

A word-processor licence would not be prepaid on the basis that I may type a letter in the future. It may be prepaid if the unused period is refundable - at net realisable value.

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I agree with Malcolm (and others)

jndavs wrote:

Assets and charges that can be time apportioned are not quite the same thing.

A word-processor licence would not be prepaid on the basis that I may type a letter in the future. It may be prepaid if the unused period is refundable - at net realisable value.

So when I pay a premium on a lease for premises, it's not an asset (unless it's refundable), because I may choose not to occupy the premises?

The reason for paying the licence fee is to obtain a right to 12 months commercial exploitation of intellectual property.  If there is an unexpired term, the outstanding right to commercial exploitation of that intellectual property is a right (UK GAAP) to economic benefits and I imagine the entity expects to obtain (IFRS) those economic benefits.

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By neileg
01st Feb 2013 13:40

@jndavs

Prepayments are used to implement the accruals concept. Refundability is not an essential attribute.

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By Glennzy
01st Feb 2013 13:53

Defo

 should be P & L.

I wouldnt even bother capitalising laptops these days as they are virtually disposable. With AIA in place you get 100% either way. 

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01st Feb 2013 15:00

Are you forgetting?

 Bear in mind that most unexpired software licences cannot be resold.

 Certain very well known major software houses are vicious and nasty about this.

 Most licences state that the software is solely and exclusively for use by the licensee.

 Any person taking it over would have to renegotiate a fee with the software house.

 That includes gifts of ex-office PCs to a grandchild.

 

 

 

 

 

 

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02nd Feb 2013 18:40

It's a prepayment

This is like any other prepayment. You are paying now for a service you will receive over the next 12 months, so, if it is material, spread the cost over that period.

Malcolm

Malcolm Greenbaum

Director, Greenbaum Training & Consultancy Limited

IFRS, US GAAP, UK GAAP, UK Tax and VAT

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By jndavs
04th Feb 2013 11:03

Economic benefit

Ok, so there is a future economic benefit, I was citing refundability as one such possibility.

Many assets/prepayments under SSAP 2 no longer meet the FRS 5 definition of assets and hence should be charged directly to P&L. You can not glibly match costs and incomes under the accruals concept any more.

 

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04th Feb 2013 13:14

my god this is generating a lot of heat
What about materiality

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I'm sure the OP...

... wouldn't have asked if it wasn't material? They'd have just written it off to P&L surely? Or would they?

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26th Aug 2015 09:13

Acquiring a software

I think acquiring the software will be recorded as an asset and will be depreciated over the useful life of it whereas the cost of renewal the licenses will be P/L

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