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Change in life of computer software IAS 16, IAS 8

5 May 2010 2,261 views 8 Comments

Dear Experts,

If useful life of computer software is revised from 5 years to 2 years, this would be a change in estimate as per IAS-8 and change will be prospectively.

However, in practical example

Cost $ 50000 as on 31-12-09
Accumulated Depreciation $ 30000 as on 31-12-09
NBV 20000 as on 31-12-09
If life is revised from 1-1-10 from 5 years to 3 years then
NBV 20000 would be amortized over 2 years from 1-1-10.
but what if some softwares have already finished their original life after 3 years, what would be effect.

HB

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8 Comments »

  • IFRS List.com: Change in life of computer software IAS 16, IAS 8 — Accounting Blog said:

    [...] admin wrote an interesting post today. Here’s a quick excerptWelcome to IFRSLIST.com, the free community where you can find resources, share experience, knowledge and ideas about IFRS, bAccounting/b and Auditing with more than 1.5k members. Sign-up and start a new discussion. … [...]

    # 5 May 2010 at 5:47 am
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    # 5 May 2010 at 9:39 am
  • Wallace Consulting Group said:

    If it is really a change of estimate then it doesn’t matter if some of the software has already been fully amortized – it’s still prospective. But if this is a pervasive issue it may indicate that the estimate of 5 years was never reasonable in the first place and that this area needs to be restated retrospectively as the correction of an error. Need to establish and document that the change of estimate is a reasonable response to new information, experience etc. and not a result of an improper approach in previous periods…

    # 5 May 2010 at 9:08 pm
  • jafferyasim said:

    If any software already crossed its useful life and by mistake or oversight that was not detected previously than my opinion is that you should restate your financial statement under IAS-8 if it has material effect otherwise just charge whole amount in current year amortization & disclose the incident in fs.

    # 6 May 2010 at 5:48 am
  • hbjaipur said:

    Dear

    What could be possible reasons that the change of estimate is a reasonable response to new information, experience etc.
    Due to fast changes in technology softwares become obsolete fast.

    # 6 May 2010 at 7:23 am
  • ifrslist
    ifrslist said:

    [New Post] Change in life of computer software IAS 16, IAS 8 – http://www.ifrslist.com/2010/05/change-i...
    via Twitoaster

    # 18 May 2010 at 3:26 am
  • Monah said:

    http://rel” rel=”nofollow”>хм…

    Что то со ссылками…

    # 5 June 2010 at 5:37 am
  • patriciawalters said:

    Here are a few additional thoughts:

    IAS 38 require the useful life of each item of software to be assessed separately. Each item should also be amortized and tested for impairment separately, if practicable.

    Therefore, in your case above, if the software had already been amortized for 3 years (hence the 30,000 accumulated depreciation) and the useful life was changed from 5 to 3 years, the entire net book value would be written off immediately.

    I also support Wallace Consulting Group’s comment about needing to document reason for change in useful life. If you are assessing useful lives of different items of software separately, you should be less likely to make an error in the estimate on day 1.

    Patricia

    # 9 June 2010 at 9:44 pm

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