Documente Academic
Documente Profesional
Documente Cultură
Internally generated computer software for internal use is developed or modified internally
by the enterprise solely to meet the needs of the enterprise and at no stage it is planned to sell
it.
The stages of development of internally generated software may be categorized into the
following two phases:
a. Preliminary project stage. i.e., the research phase.
1. Selling, administration and other general overhead expenditure unless this expenditure
can be directly attributable to the development of the software;
2. Clearly identified inefficiencies and initial operating losses incurred before software
achieves the planned performance; and
(d) A reconciliation of the carrying amount at the beginning and end of the period show-
ing:
(i) additions;
(ii) retirements and disposals;
(iii) impairment losses;
(iv) amortisation recognised during the period; and
(v) other changes in the carrying amount during the period.
Case Study- XXX limited
(Million Rs)
Learning Solutions Software Solutions Total
Revenue
25,641 19,356 44,997
External Sales
Results
Segmental Results 5,009 2,851 7,860
Unallocated Corporate
(3,252)
expenses
The financial statements are prepared on an accrual basis and under historical cost conven-
tion. The significant accounting policies adopted by the company regarding Fixed Assets,
Depreciation and Research and Development are detailed below:
Fixed Assets and Depreciation
Fixed Assets are stated at acquisition cost.
Depreciation is charged on a pro-rata basis on the straight-line method. over the estimated
useful lives of the assets determined as follows:
Further, computer systems and software forming part of plant and machinery are techni-
cally evaluated each year for their useful economic life and the unamortised depreciable
amount of the asset is charged to profit and loss account as depreciation over their revised
remaining useful life.
Research & Development
Equipment purchased by the Company for research and development purposes are capital-
ized in the year of acquisition and included in Fixed Assets. All revenue expenses incurred
for research and development activities are charged to the profit and loss account for the
year.
Expenditure incurred on Research & Development
2007 2006
Capital purchases 726,630 20,256,233
Revenue expenditure 19,145,152 96,699,335
EXERCISE
(1) Discuss the position of AS-26 on the treatment of Software acquired for internal use.
(2) Explain the treatment of internally generated software (a) in the preliminary stage and
(b) in the development stage as per AS-26.
(3) Explain the amortization requirements w.r.t. period and method in respect of computer
software as per AS-26.
Problems
1. An enterprise is developing as software internally. In the year 2006, expenditure in-
curred was Rs. 25 lacs, of which Rs. 24 lacs was incurred before 1st December 2006. The
enterprise was able to demonstrate on 1 st December 2006 that the software develop-
ment met the criteria for being recognized an intangible asset. The recoverable amount
of the know-how embodied in the development (including future cash outflows to com-
plete the process before it is available for use) is estimated to be Rs 20 lacs. How will you
treat it in Financial Accounts and disclose it in the Balance Sheet of the company?
2. A computer software is appearing in Balance Sheet of A Ltd. on 1.04.05 at Rs. 8 lakhs. It
was acquired for Rs. 20 lakhs on 1.4.2002, available for use from then. It follows a policy
of amortizing the item over 5 years straight line. The period as per AS-26 is 8 years. How
much amount should be amortised over the next two years?