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FRS105 treatment of software development

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Hi

My client is developing software with the intent to sell licenses. To date he has spent money primarily on external consultants in order to develop the software which I would considered a software development asset.

However FRS105 below states that all Research and Development should be expensed.

A micro-entity shall recognise the expenditure on the following items as an expense and shall not recognise such expenditure as intangible assets (the list is not exhaustive): (a) Expenditure on research and development activities

This seems quite broad brush and I am not sure whether that refers to only internally generated development, so wanted to see if anyone else had any experience of this?

Additionally, does the tax treatment follow the accounting treatment in this case if it did need to be expensed?

Thanks!

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By paul.benny
09th Aug 2020 14:28

FRS102 requires it to be probable that economic benefits will flow from the R&D in order to capitalise it.

The wording of FRS105 seems pretty clear. So if you want to capitalise, you'll need to report under FRS102, being mindful of the critera.

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Replying to paul.benny:
RLI
By lionofludesch
09th Aug 2020 15:44

Agree.

If you want to show it as an asset, you'll need to file FRS102 accounts.

As an aside, it might be worth considering whether you'll need to file FRS102 accounts at some point in the near future as you'll need to reinstate the amounts you wrote off under FRS105.

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By mike1990
10th Aug 2020 18:47

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