Computer software & intangible assets

Question

Our company recently bought some Microsoft Windows 7 & Office 2010 licenses for some computers which we have already been using with opensource software. My question is whether we need to treat these licenses as intangible assets as per IAS 38 or include in computer equipment & account for as per  IAS 16.

Answer 1

The general rule is that when the software is an integral part of the hardware then the software cost should be included in the hardware and account for as per IAS 16 - Property Plant & Equipment. For example, an operating system such as Microsoft Windows, Mac, Linux of a computer is an integral part of the computer and the computer can not operate with such OS. Therefore operating system should be capitalized along with the hardware cost. However MS Office package is not an integral part of a computer and therefore should be treated as intangible assets and accounted for as per IAS 38 - Intangible Assets. Hope you got the answer.