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Useful life of intangible assets


Hellow!

Please, help with the following situation.

A bank "ABC" uses an accounting software provided by a developer "XYZ". The software is owned by XYZ and the bank pays monthly rental payments for access to the software. Rental agreements are usually concluded for one year; new agreement is concluded at the end of each year.

Recently, the bank required special modules to be developed. Price of each module is material (roughly 1/2 of the annual rental payment amount). Modules are developed only for ABC, and the bank will buy licenses for them. Therefore, ABC is going to treat these modules as its own intangible assets. Currently, ABC doesn't have an accounting policy for such intangible assets.

What useful life ABC should accept for these intangible assets? A license for each module is lifetime.
Should ABC estimate the period for which modules will be in use?
Will be the useful life decision affected by the fact that modules can be used only with the software not owned by the ABC (de jure, bank has no guarantee that XYZ will provide access to the software after the annual period)?

asked Apr 1, 2016 in IAS 38 - Intangible Assets by Serhii Level 1 Member (1,500 points)

1 Answer

0 votes
 
Best answer
Will your bank have the ownership of the new modules? Paying a license fee does not mean that you own the software. If you do not own the software then you can not recognize an asset but the license cost will be an expense.If you own the software then the useful life can be the period that you would use it in the bank. The risk that software vendor may not support the software is a normal risk that any company would face where is is not in writing. Its about management judgement. Generally a software system's life span would be around 05 years.
answered Apr 5, 2016 by Jennifer
selected Apr 6, 2016 by Serhii
Thank you! Very clear answer.


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