in General IFRS Discussion by
Should the cost of purchasing annual license for Microsoft office  365  be capitalized or expensed?

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by Level 2 Member (4.6k points)
According IAS 38-intangible assets are following criteria is to recognize license
1) Intangible is identifiable
2) Power to obtain benefits from the assets
3) Future economic benefit is expected.
If following criteria met then you can capitalize Microsoft license.

Further it need to consider that software is for one year or more than one year, if license is granted for more than one year  then it would be recognized as non current assets. And will be amortized as per company policy. the capitalization of assets is also need to consider the organization's policy for the recognition of assets and expenses, however some companies have set the certain limits for the capitalization. Example: company has set the policy that an assets having cost amount $50 will be recognized as expense then it should be expenses out if the cost of an asset is upto $50.
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reshown by
Capitalize and amortize over the year.
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When the software purchase has been customized it can meet the guidelines in IFRS 16.  Through a customized purchase agreement, an asset is recognized based on the NPV of the lease payments with a corresponding liability.  Effectively the respective amortization and the interest expenses appear then below EBITDA.  EBITDA sole focus is on earnings from operations and might tell investors how the company is really doing and whether it can service it's future debt from operations.  For investors it is easier to compare the financial health of companies and deciding where to invest.  Effects due to different capital structures, tax rates and depreciation policies are left out.

- clearer reflection of operations by stripping out expenses which might obscure true performance
- Interest, mostly reflects management's choice of financing, is ignored
- Taxes are left out as these can vary widely depending on acquisitions and losses in prior years
- removes the arbitrary and subjective judgments that can go into calculating depreciation and amortization, i.e. useful lives, residual values and various depreciation methods. By eliminating these items
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It should be Expensed

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