Does anyone know where the best place to find
information on capitalizing internal software
development under IFRS? Any links? Which IAS/IFRS
standard is this covered under?
Thanks in advance for the help!
You raise an interest topic David, I would like to see the view of others
Look at this link to IAS 38 Intangible assets
Internally Generated Intangible Assets
51. It is sometimes difficult to assess whether an internally generated intangible asset qualifies for recognition because of problems in:
(a) identifying whether and when there is an identifiable asset that will generate expected future economic benefits; and
(b) determining the cost of the asset reliably. In some cases, the cost of generating an intangible asset internally cannot be distinguished from the cost of maintaining or enhancing the entity’s internally generated goodwill or of running day-to-day operations.
Therefore, in addition to complying with the general requirements for the recognition and initial measurement of an intangible asset, an entity applies the requirements and guidance in paragraphs 52–67 to all internally generated intangible assets.
52. To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into:
(a) a research phase; and
(b) a development phase.
Although the terms “research” and “development” are defined, the terms “research phase” and “development phase” have a broader meaning for the purpose of this Standard.
53. If an entity cannot distinguish the research phase from the development phase of an internal project to create an intangible asset, the entity treats the expenditure on that project as if it were incurred in the research phase only.
54. No intangible asset arising from research (or from the research phase of an internal project) shall be recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred.
55. In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists that will generat
e probable future economic benefits. Therefore, this expenditure is recognised as an expense when it is incurred.
56. Examples of research activities are:
(a) activities aimed at obtaining new knowledge;
(b) the search for, evaluation and final selection of, applications of research findings or other knowledge;
(c) the search for alternatives for materials, devices, products, processes, systems or services; and
(d) the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services.
57. An intangible asset arising from development (or from the development phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all of the following:
(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.
(b) its intention to complete the intangible asset and use or sell it.
(c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
(e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
(f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.
58. In the development phase of an internal project, an entity can, in some instances, identify an intangible asset and demonstrate that the asset will generate probable future economic benefits. This is because the development phase of a project is further advanced than the research phase.
59. Examples of development activities are:
(a) the design, construction and testing of pre-production or pre-use prototypes and models;
(b) the design of tools, jigs, moulds and dies involving new technology;
(c) the design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production; and
(d) the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services.
60. To demonstrate how an intangible asset will generate probable future economic benefits, an entity assesses the future economic benefits to be received from the asset using the principles in IAS 36, Impairment of Assets. If the asset will generate economic benefits only in combination with other assets, the entity applies the concept of cash-generating units in IAS 36.
61. Availability of resources to complete, use and obtain the benefits from an intangible asset can be demonstrated by, for example, a business plan showing the technical, financial and other resources needed and the entity’s ability to secure those resources. In some cases, an entity demonstrates the availability of external finance by obtaining a lender’s indication of its willingness to fund the plan.
62. An entity’s costing systems can often measure reliably the cost of generating an intangible asset internally, such as salary and other expenditure incurred in securing copyrights or licences or developing computer software.
Intangible Assets — Web Site Costs — SIC-32
63. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets.
64. Expenditure on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance cannot be distinguished from the cost of developing the business as a whole. Therefore, such items are not recognised as intangible assets.
COST OF AN INTERNALLY GENERATED INTANGIBLE ASSET
65. The cost of an internally generated intangible asset for the purpose of paragraph 24 is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria in paragraphs 21, 22 and 57. Paragraph 71 prohibits reinstatement of expenditure previously recognised as an expense.
66. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Examples of directly attributable costs are:
(a) costs of materials and services used or consumed in generating the intangible asset;
(b) costs of employee benefits (as defined in IAS 19, Employee Benefits) arising from the generation of the intangible asset;
(c) fees to register a legal right; and
(d) amortisation of patents and licences that are used to generate the intangible asset.
IAS 23, Borrowing Costs, specifies criteria for the recognition of interest as an element of the cost of an internally generated intangible asset.
67. The following are not components of the cost of an internally generated intangible asset:
(a) selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to preparing the asset for use;
(b) identified inefficiencies and initial operating losses incurred before the asset achieves planned performance; and
(c) expenditure on training staff to operate the asset.
Example Illustrating Paragraph 65
An entity is developing a new production process. During 20X5, expenditure incurred was CU1,0001, of which CU900 was incurred before 1 December 20X5 and CU100 was incurred between 1 December 20X5 and 31 December 20X5. The entity is able to demonstrate that, at 1 December 20X5, the production process met the criteria for recognition as an intangible asset. The recoverable amount of the know-how embodied in the process (including future cash outflows to complete the process before it is available for use) is estimated to be CU500.
At the end of 20X5, the production process is recognised as an intangible asset at a cost of CU100 (expenditure incurred since the date when the recognition criteria were met, i.e., 1 December 20X5). The CU900 expenditure incurred before 1 December 20X5 is recognised as an expense because the recognition criteria were not met until 1 December 20X5. This expenditure does not form part of the cost of the production process recognised in the balance sheet.
During 20X6, expenditure incurred is CU2,000. At the end of 20X6, the recoverable amount of the know-how embodied in the process (including future cash outflows to complete the process before it is available for use) is estimated to be CU1,900.
At the end of 20X6, the cost of the production process is CU2,100 (CU100 expenditure recognised at the end of 20X5 plus CU2,000 expenditure recognised in 20X6). The entity recognises an impairment loss of CU200 to adjust the carrying amount of the process before impairment loss (CU2,100) to its recoverable amount (CU1,900). This impairment loss will be reversed in a subsequent period if the requirements for the reversal of an impairment loss in IAS 36 are met.
Basis for Conclusions: Internally Generated Intangible Assets — IAS 38, BCZ29–BCZ46
You know Bertold this is what I was telling in Germany last week to “a US GAAP expert” from the US (in as much internal software and website costs can be capitalized under US GAAP) that it was not a matter of whether or not we can say: yes we capitalize software but a matter of having a proper working plan at the outset of the project to establish what is capitalizable i.e. to me one off software costs 18 months after a major IT project has started are a dubious capitalization if they are not part of the working plan in the first place (or eventually of packages as you mention provided these packages where well defined at the outset of the project)
BertoldI do not think I succeeded to make him understand my viewpoint
If You are able to define the Transaction-costs of the Software (Workingplan,- packages) exactly the Transactionscosts can (or should be) converted into historical costs referring to IAS 38.Bertold
If You are able to define the Transaction-costs of the Software (Workingplan,- packages) exactly the Transactionscosts can (or should be) converted into historical costs referring to IAS 38.