Intangible Assets — Web Site Costs
SIC Interpretation 32
Intangible Assets — Web Site Costs
SIC Interpretation 32
General
- A web site designed for external access may be used for various purposes such as to:
- advertise products and services,
- provide electronic services, and
- sell products and services
- A web site designed for internal access may be used to:
- store company policies/customer details, and
- search relevant information.
Stages of a web site's development
- Planning – undertaking feasibility studies, defining objectives and specifications, evaluating alternatives and selecting preferences.
- Application and Infrastructure Development –obtaining a domain name, purchasing and developing hardware and operating software, installing developed applications and stress testing.
- Graphical Design Development – includes designing the appearance of web pages.
- Content Development –creating, purchasing, preparing and uploading information, either textual or graphical in nature, on the web site before the completion of the web site’s development
- Once website development is completed, the operating stage begins (in this stage the company maintains the website)
- The cost of purchasing, developing, and operating hardware (e.g. servers and Internet connections) of a web site are accounted for as property, plant and equipment (IAS 16)
- This section also doesn’t apply to situations where you are in the business of creating websites for others
- Expenditure on an Internet service provider hosting the entity’s web site is expensed.
Criteria
To capitalize the costs of website development you need to meet the following criteria:
- It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity
- The cost of the asset can be measured reliably
- Must meet criteria for capitalizing development phase costs:
- the technical feasibility of completing the website
- its intention to complete the website and use it
- its ability to use website
- how the website asset will generate probable future economic benefits
- the availability of adequate technical, financial and other resources to complete the development and to use the website
- ability to measure the expenditure attributable to the website during its development
Stages of website development and accounting Treatment
Stage | Accounting Treatment |
Planning Stage |
|
Application and Infrastructure Development stage, Graphical Design stage, Content Development stage |
|
Operating stage |
|
Subsequent Measurement
- Follow IAS 38 and use the cost model or the revaluation model (usually cost model is used)
- SIC 32 recommends that the best estimate of a web site’s useful life should be short