A client runs a secure VPN system which utilizes software tokens. They buy perpetual licenses and then charge their clients for access to the system. The charge is about twice the cost of the tokens (about £150 each) and is a one off.
Our client has capitalized the software tokens on the grounds that they own them, and their client merely has a right to use them for so long as they are a client.
So there's a mismatch between the income - it all arrives upfront, and the cost - which hits the P&L according to the depreciation policy.
I don't think this shows a true & fair view and would prefer either to defer the income over the expected life of the token (i.e. in line with the depreciation policy) or to depreciate the tokens 99% in the year in which the income arrives - i.e. all in the first year.
Unsurprisingly, the client, wanting to show ever increasing turnover & profits, disagrees.
What would you do? Is there a reasonable alternative to my preferred treatments?
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