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you have to expense the remaining value of the software at the end of the period and if the software is still in use you have to keep at showing in the book with the1 $ value
Please refer to IAS. Thanks.
The cost of the software should be capitalized for months and as of December, you should have a month amortization and months unamortized cost.
Exp- Software Development Dr. $
Prepaid Expense Dr0.$
Sundry Creditor Cr0.$
Software licences will usually be categorized as intangible assets if they are not hardware dependent or may for part of Property Plant Equipment (PPE) if they are hardware dependent. This really depends on how the company defines software
Eg:1. MS operating system will be part of PPE as the hardware cannot operate without them
2. A time and attendance system may be categorised as an intangible as it may not have any particular hardware dependencies.
Softare licences are right to use the software for a particular period of time and are intitaly capitalised and then amortised.
In the above example, the, software licence is capitalised on acquiring it on1 Dec. Given it has a uiseful economic life of months, at the end of the first month1/ would be expended. If we assume this this software licence is an intangible and below are the accounting entires
Entries on capitaliation -1 Dec
DR: Software Licence (intangible asset cost),
CD: Cash
Entry on Dec
DR: Income statement software licence amortization expense
CR: Accumulated Amortization on software licence account1,
At Dec BS will show
Software licence cost,
Less Accumulated amortization1,
Net book value,
Income statement1Dec to Dec will show
Amortization expense1,
Hope this is clear
Treatment of software with license life of months should be recorded in prepayment initially with amount of0 and needs to be amortized monthly based on his life of license.
Prepaid Expense , (Balance Sheet)
Software expenses 1, (P&L)
Cash , (Balance Sheet)
detail :
A software license purchased for $, with the validity of1 year starting from1-Dec-, What will be its treatment at year end-Dec-?
I agree with the answer given by Rehan Qureshi Chief Financial Officer (CFO)
the income statement reported as one thosand $
the balance sheet repored as eleven thousand $ as an advanced expenses
Software License0 / = per month depreciation/amortization.
0 will be the net book value at the end of year.
will be the expense for the year.
