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Is SAP software implementation cost and annual licences cost should be capitalized? Please give the reference of standard!

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Question added by Abu Bakar Ashfaq , Senior Consultant , PricewaterhouseCoopers Middle East
Date Posted: 2015/11/23
Sajid Mafahir
by Sajid Mafahir , Group Business Unit Controller , TCE Qatar

In accordance with IAS/IFRS SAP implementation and licence cost should be capitalized as they fit the definition of asset.

An asset can be capitalized if its a resource controlled by the organization, if the cost can be reliably measured and the economic benefits would flow into the organization

  • SAP is a ERP, they are considered for long term usage and expensive.
  • The implementation is limited to the organization, the cost can be reliably measured and the organization could expect generation of economic benefits in future by the implementation.
  • The license cost too should be capitalized since its by the ability to use the ERP that they can expect generate economic benefits and the license is limited to the organization hence the organization has control of the license. The could could be reliably and directly measured.

 

Overall, the implementation and license cost must be capitalized if it meets the definition of assets in accordance with IAS.

 

Point to note - Maintenance cost must be expensed.

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