Do we have a choice whether to treat them as an asset or expense?
Specifically for a small non profit ltd company that is making a loss, with a website costing £3000, what would be the best way to handle this.
I guess if it is treated as an asset one would need to distinugish money spent on websites into: Setup cost, and any long term improvements made Total of which would be asset orignal cost. Website running expenses such as updating stock and events listed. Which would be an expense.
Then how to depreciate ? Say website orignally cost £3000 to setup, what would be an appropraite way to depreciate this?
If it meets the criteria of being an intangible asset per IAS38 / FRS10, and is clearly not insignificant to the financial statements then it should be capitalised and depreciated over its estimated useful economic life.
I would depreciation on a straight line basis over four years to zero residual (so £750 p.a.). Although if the useful life is estimated to be longer you should of course adjust that.
As you suggest, the incidental associated costs which are not directly part of the development costs would be expensed.
HTH,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Can you or anyone show me a link where I can look up those criteria?
I've had a look around on the internet, but not sure what are original standards that apply to uk and uptodate or not. And HMRC were showing me bits and pieces that were not relavant. Not sure how to use that site to find an IAS38 article that is relavant really..
Also not sure what applies wrt internally generated, if an employee designs the website it cant be considered an asset?
IAS38 is an international financial reporting standard. FRS10 is the equivalent under UKGAAP.
The definition of an intangible asset is that it must be (probably not word perfect as I'm doing it from memory) :
- Identifiable
- Seperable
- It is probable that future economic benefits associated with the asset will flow to the entity
- The asset has a value that can be measured reliably.
Don't get confused by the future economic benefits line for something that doesn't generate a return. The line also covers that if the asset were sold to whom would the payment for the asset flow.
Have a read of the standard(s) Here :
http://www.worldgaapinfo.com/pdf/IAS/IAS38.pdf
And here for UKGAAP (not a very good photocopy but quite readable) :
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
