Computerized accounting systems

Accounting treatment of software

Valuation and registration: An intangible asset is an identifiable asset, of a non-monetary nature and without physical appearance, that is to be used in the production or supply of goods or services, to be leased to third parties or for functions related to the administration of the company. entity. An asset is a resource:

Controlled by the company as a result of past events, and from which it is expected to obtain, in the future, economic benefits for the entity.

An intangible asset must be recognized in the financial statements, when.

It is probable that the future economic benefits, which have been attributed to it, will flow to the company, and the cost of the asset can be measured reliably.

computerized-accounting-systems-1

Definitions

Amortization: is the systematic distribution of the depreciable amount of an intangible asset between the years of its estimated useful life. Development: is the application of the results of the investigation to a plan or design in particular for the production of materials, products, methods, New or substantially improved processes or systems, before the beginning of their production or commercial use. Research: is the original and planned study, undertaken with the purpose of obtaining new scientific or technological knowledge.

Characteristics that an asset must meet to be considered an intangible asset.

Paragraphs 10 - 17 of IAS 38 mention three essential characteristics:

Identifiability:

An intangible asset can be clearly and separably identified, provided that the company can rent it, sell it, exchange it or distribute the future economic benefits attributable to such asset.

Control

A company will control a certain asset as long as it has the power to obtain the future economic benefits that come from the underlying resources in it, and can also restrict the access of third parties to such benefits. As regards, a company can control its future profits if it has them protected with the laws that are enforceable in court.-

Future economic benefits.

The benefits that can come from an intangible asset include income from the sale of products or services, cost savings and other returns that arise from the use of the asset by the company.

Valuation rules.

Acquired software

When the software is acquired by the company, the measurement must be made at its historical acquisition cost.

The historical cost of acquisition includes its purchase price including the duties or taxes that are imposed on the acquisition and that are not recoverable by the company, and all the disbursements directly attributable to the preparation of the asset for its intended use.

Developed software

When the software is developed internally, the initial measurement must be made at its cost of production, that is, the sum of the disbursements incurred, from the moment when it meets the conditions for its recognition.

b.1. Technically, it is possible to complete the production of the intangible asset, so that it can be available for use or sale.

b.2. Your intention to complete the intangible asset in question, to use or sell it.

b.3. Your ability to use or sell the intangible asset.

b.4. How the asset is going to generate probable future economic benefits.

b.5. The availability of technical, financial or other resources to complete the development.

b.6. Its ability to reliably assess the expense attributed to the intangible asset during its development.

Amortization of Intangible Assets

c.1. Amortization.

According to IAS-38, paragraph 79 establishes the useful life of an intangible asset cannot exceed twenty years, counted from the moment the element is available for the use for which it is intended, which is technically justified.

To establish the useful life of an intangible asset, it is necessary to consider many factors such as:

The expected use of the asset by the company, as well as whether the item could be managed efficiently by a different team; The typical life cycles of the product, as well as the publicly available information on estimates of the useful life, similar of assets that have a similar use; The incidence of technical, technological or other obsolescence; The stability of the industry in which the asset will be operated, as well as changes in market demand for the products or services manufactured with the item in question.

Also, given the current experience of rapid changes in technology, both computerized programs and technological obsolescence, therefore their useful life is short.

Therefore, to establish the useful life of a software, the changes referred to in the previous paragraph must be taken into account, since new programs are constantly being developed and / or existing ones are improved, updating the versions of which are on the market, rendering the programs being used obsolete or deficient. Therefore, it is considered that the useful life of these can be estimated in very short periods of time, due to the incidence caused by technical obsolescence.

c.2. Amortization method

The amortization method used must reflect the pattern of consumption and use, by the company, of the economic benefits derived from the asset; If this cannot be determined safely, the straight-line method of amortization (straight line) should be adopted. The calculated amortization fee must be charged as an expense for the period.

It should be noted that both the period and the amortization method used must be reviewed at least at the end of each accounting period, in order to make the necessary modifications, in the period and in the amortization method, by the Effects that occur in the amortization installments of the period in which they are detected and in subsequent periods, which should be treated as changes in accounting estimates, as established in IAS 8.

Accounting record

Treatment by reference point

According to IAS 38, benchmark recognition refers to the recording of intangible assets at cost less accumulated amortization and accumulated impairment losses that may have affected it.

Pda. No. x1

VAT Tax Credit $ xx

Intangible assets x

Softwares

Cash $ xxx

V / initial registration for the acquisition

Of software

Pda. No. X2

Administration expenses $ xx

Software amortization

Selling expenses xx

Software amortization

Accumulated amortization $ xxx

software

V / Record of amortization expense

Alternative Treatment Allowed

This is applied to the asset after having recognized it at its acquisition or production cost, this treatment will be done taking into account an active market.

After initial recognition, the elements of intangible assets must be accounted for at their revalued values, this means that they must be accounted for less accumulated amortization and any accumulated loss due to impairment of the asset value. After the revaluation.

Regarding software, the alternative treatment would not have greater applicability, since due to technological advances, the useful life of these is increasingly shorter, since they are used for short periods and then they fall into obsolescence and it is necessary to acquire a new software or make quite drastic adjustments to the developed one to suit what is required at that time.

Practical case

The following are the records of the different reasons that can be generated in the accounting of a software:

Accounting As Expense

It occurs when the software is developed by the company, according to IAS 38, paragraph 42 establishes that the disbursements of the research phase must be recognized as expenses of the period in which they are incurred, because in the research phase the company does not It can demonstrate that there is an intangible asset that can generate benefits in the future.

The registration to be carried out for this operation would be:

Pda. No. x

Research expenses $ xxx

software

Cash $ xxx

V / Record of expenses incurred in the

Market research for the development

Software development for department x.

Accounting for a Software Acquisition

The accounting records to be developed for said operation are the following:

To carry out the accounting of the Software at the amount initially recognized.

Pda. No. x

VAT TAX CREDIT $ xxx

INTANGIBLE ASSETS $ xxx

software

BANKS $ xxx

Banks Checking Accounts

V / Registration of the acquisition of the

XXX software.

Record of Amortization of Software Cost

Pda. No. x

EXPENSES $ xxx

Amortization

ACCUMULATED AMORTIZATION $ xxx

software

V / Recognition of amortization

Software Monthly XXX.

Accounting for Developed Software

All the disbursements made during development are recorded, which are part of the cost of the Asset which will be capitalized and will be recognized until the moment in which the software development process is concluded.

The accounting records to be developed for said operations are the following:

Pda. No. x

DEFERRED CHARGES $ xxx

Developed software

BANKS $ xxx

Banks Checking Accounts

V / Costs incurred during

Software Development XXX.

Pda. No. X.2

Intangible Assets $ xxx

Developed software

Deferred Charges $ xxx

Developed software

V / To register the software to the amount

Development, as an intangible asset.

Pda. No. x - 3

Expenses $ xxx

Software amortization

Accumulated amortization $ xxx

software

V / Recognition of amortization

Software Monthly

Accounting For Leased Software

d.1. Accounting for the Lease in the Lessee's Financial Statements.

At the beginning of the finance lease, it must be recognized, in the lessee's balance sheet, recording an asset and a liability of the same amount, equal to the fair value of the rented asset, or it will be used, it will be the interest rate implicit in the lease, if it can be determined, otherwise it will be the incremental interest rate, of the tenant's loans.

Example: Through a financial lease contract, a batch of computers and accounting software are acquired, for the processing and generation of accounting information of the company, lessee "X", the contract estimates installments of $ 250.00 at a rate of 12 % for a year.

VA = QUOTA ì (1 + i) ⁿ - 1ü

i (1 + i) ⁿ þ

Where:

A: Current value?

i: Interest rate 12% Î 0.95% per month

n: Payment period 1 year

R: Ordinary income $ 250.00

Calculation of the fee

VA = 250.00 ì (1 + 0.0095) ¹² - 1ü VA = $ 2,822.68

î i (1 + 0.0095) ¹² þ

Pda. No. x

Assets Acquired in Lease $ 2,822.68

Finance lease $ 2,822.68

Computer equipment

Accounting software

Lease obligations $ 2,822.68 Finance lease

Company “Y” $ 2,822.68

V / of the registration of the lease

Financial held with the company

Leasing company "Y".

It is important to mention that the value registered in the account "Lease obligations" represents both the long-term obligation in the respective proportion, this type of transactions must be accounted for and presented in accordance with their essential financial meaning, and not only in consideration of its legal form.

Lease Fees

Each of these installments respectively constitute the financial charges or interest for the use of the type of financing presented by the financial lease, and the drafting of the debt; This implies that each of the lease installments have to be divided into two parts that respectively represent the financial charges and the debt drafting. The accounting record is as follows:

Game No. X

Lease obligations $ 223.18

Finance lease $ 223.18

Company "Y"

Cash $ 223.18

V / payment of a lease fee

Financial in which a lot of

Computers and accounting software.

Game No. X

Tax Credit VAT $ 3.49

Financial Expenses $ 26.82

Interest $ 26.82

Cash $ 30.31

V / lease interest

Financial, immersed in the share of

Lease paid.

Depreciation

For the lessee, depreciation is not accepted as a deductible expense that reduces the income tax payable; On the other hand, the expense for the payment of installments to which the financial lease gives rise can be deductible.

The depreciation policy for leased assets must be consistent with the one followed for the rest of the depreciable assets that are owned, and if there is reasonable certainty that the lease will obtain the property at the end of the lease term, the asset must be fully depreciated in the least useful life period or the term of the lease, whichever is shorter.

In the event that there is reasonable certainty that it will be obtained at the end of the lease term, then it must be depreciated in and during the useful life of the asset.

Game No. X

Administration Expenses $ 80.00

Selling Expenses 120.00

Depreciation of leased assets

Accumulated depreciation $ 160.00

Leased assets $ 160.00

Accumulated amortization 40.00

Lease assets $ 40.00

V / from the depreciation charge record

of computers and software

acquired in financial leasing.

d.2. Accounting of the Lease in the Financial Statements of the Lessor.

According to the International Accounting Standard (IAS - 17)

Landlord concept:

This is the name given to the natural or legal person, who knows the use or enjoyment of a thing executed, the work or provides the service.

Paragraph No. 28

The lessors must recognize the Assets that they maintain in Financial Leasing in the balance sheet and present them as a receivable, for an amount equal to the net investment in the lease.

Practical case

Initial records

Game No. 1

Lease debtors $ 1,000.00

Financial

Company "X"

Lease assets $ 1,000.00

Financial

V / register of leased assets.

Game No. 2

Cash $ 253.49

Lease debtors $ 223.18

Company “X” $ 223.18

Tax Debit 3.49

Financial Products $ 26.82

Financial leasing

V / registration of the first installment

amortization of principal and interest.

Modification costs of existing computer programs.

At times, companies may need to incur considerable costs to modify existing computer application systems, clear examples of this are: what was called "Cost of computer programs for effect 2000", and adoption of a new unit of account, such as the euro.

The need for major modifications to computer programs can lead to uncertainties. In accordance with paragraph 8 of IAS 1 (revised in 1997), companies are advised to report, outside the main body of the Financial Statements, about the main uncertainties they face due to this cause (eg giving a description of the activities and expenses, both planned for future periods and already carried out, related to the significant modifications of the computer programs).

Causes of Modification

When a company decides to modify computer programs, they are derived for different reasons, among which may be:

Due to obsolescence Due to the ineffectiveness and inefficiency with which they develop operations Expansion of the organizational structure Due to legal provisions Due to new company requirements.

Accounting Treatment Of Modifications Of Computer Programs

The accounting treatment that may be derived from the modifications of the programs, or that is, the subsequent outlays of the initial cost (this is necessary for a better performance of the computer program). These disbursements can be considered in two ways:

When considering an expense

Subsequent disbursements, incurred after the acquisition of an intangible asset or its termination by the company, should be treated as charges to the Income Statement for the period in which they are incurred, unless:

It is probable that such disbursements will allow the computer programs to produce future economic benefits, in addition to those initially anticipated for the normal performance of the same, and Said disbursements can be reliably measured and attributed to the asset.

The costs that have been incurred to recover or maintain future economic benefits, which the company could expect from the originally evaluated level of performance of the computer software systems, should be recognized as an expense for the period when, and only when, the works recovery or maintenance have been carried out (eg to enable them to function as initially expected, after the turn of the millennium or the introduction of the euro).

Date	Concept	Should	To have
Xxx	Operating costs Cash	xxxxxx	Xxxxxxx

When considered as cost

When modifying a computer program and being able to consider it as a capitalizable cost, it is necessary that it meet the following two characteristics:

It is probable that such disbursements will allow the asset to generate economic benefits in the future, in addition to those initially anticipated for its normal performance, and also that such expenditures can be reliably measured and attributed to the asset.

When these two conditions are met, the post-purchase disbursement must be added as a higher cost to the book value of the intangible asset.

Revaluation

Another way to modify the book value of an intangible asset and without having to make cash outflows is through Revaluation; IAS 38 at paragraph 64 says that the revaluation amount will be set by reference to an active market. Although in reality it is unlikely that there is an active market for this type of assets such as intangibles.

The revaluation should not be selective, that is, if an asset has been revalued, all the others of its class should be revalued, unless there is no active market for said elements.

It should be remembered that a revaluation does not exactly imply an increase in the value of the asset, since it can also decrease.

If the book value is increased

The increase must be taken to a revaluation surplus account within equity. However, the increase should be recognized as income for the period to the extent that the reversal of a decrease in the value of the same asset is expressed, which was previously recognized as a loss.

If the book value is reduced

The decrease should be recognized as a loss for the period. However, the decrease must be charged directly against any revaluation surplus previously recorded in relation to the same asset, as long as such decrease does not exceed the balance of the revaluation surplus account.

The revaluation surplus will be considered realized when the asset is withdrawn or the asset is sold, then it may be transferred to retained earnings, such transfer will not be made through the Income Statement.

When an intangible asset has been revalued, the accumulated amortization can be treated in 2 ways:

Adjusting it proportionally according to the change experienced by the gross book value before amortization of the asset, so that the final book value for the intangible asset, after the revaluation, is equal to the revalued amount that is to be achieved. the gross book value of the asset, so that the resulting net balance is revalued up to the corresponding amount.

There are 2 alternatives that can be used to account for a valuation of an intangible after its initial recognition:

Treatment by reference point

After initial recognition, intangible assets must be accounted for at their cost less accumulated amortization and accumulated impairment losses that may have affected them.

Alternative treatment

After initial recognition, the elements of intangible assets must be accounted for at their revalued values, that is, they must be accounted for at their fair value on the date of revaluation, less accumulated amortization and any loss due to impairment of the asset value. post-disclosure.

Presentation in the Statement of Financial Position

Intangible assets appear in the Statement of Financial Position as the last group of assets and their presentation is as follows:

LA PIRAMIDE SA de CV

Statement of Financial Position

As of December 31, 200x

Intangible Assets $ xxxx

Computer Programs $ xxx

Patents x

Mercantile Credit xxx

Total Assets $ xxxxxx

Practical case

The company La Pirámide SA de CV acquires a program for the financial area, consisting of the following modules:

Financial Accounting Bank Control Accounts Payable Assets

This program is developed with the graphical tools of Oracle, Developer 2000 1.3.5. and operates with the Oracle Server Workgroup 2000 database.

The cost of the program is $ 5,500.00 and the price of the Oracle license is $ 280.00 per user. For the implementation of the program the company has two users. (The prices do not include IVA).

Case I

When the cost is capitalized

When the modification made to the Computer Program is accounted for in the same account of the initial registration.

DATE	CONCEPT	Partial	Should	To have
01/05/00	Game No. 1
	Software		$ 6,060.00
	Accounting programs		787.80
	IVA TAX CREDIT			$ 6,847.80
	Banks
	Bank x
	V / Purchase of Computer Program for the financial area s / Ch No. xx.

12/31/00	Game No. 2
	Administration Expenses		$ 1,212.00
	Amortization
	Accumulated amortization			$ 1,212.00
	Software
	V / amortization corresponding to the year 2000.

Data for the calculation of Amortization

$ 6,060.00 / 5 = $ 1,212.00

ON 05-01-2002, the company acquired the programs for the commercial area and for the human resources area, which together with the financial program make up the integrated system of the company.

The program for the commercial area has a price of $ 3,500.00 and is signed by the following modules:

Inventories Billing and sales Accounts Receivable

The program for the Human Resources area consists of the module for the preparation of forms at a price of $ 750.00, in addition, a license for a new user is required for a value of $ 280.00

DATA

Initial Cost $ 6,060.00

Less

Accumulated Amortization 1,616.00

Book value $ 4,444.00

Plus

Modification 4,530.00

New Cost of the Inf system. $ 8,974.00

Amortization Calculation

$ 8,974.00 / 5 = $ 1,794.00 / 12 months = $ 149.57 x 8 = $ 1,196.56

NOTE: With the previous modification it is estimated that the useful life of the program will be increased by 2 more years.

05/01/02	Game No. 3
	Software	$ 4,530.00
	Accounting programs
	IVA TAX CREDIT	588.90
	Bank x		$ 5,118.90
	V / Purchase of Computer Program for the commercial area and Human Resources to complete the System.

12/31/02	Game No. 4
	Administration Expenses	$ 1,196.56
	Amortization
	Accumulated amortization		$ 1,196.56
	Software
	V / amortization corresponding to the year 2002.

When accounting in this way, a sufficient disclosure is required in the Financial Statements to reflect the historical cost of the asset and why the book value has been modified.

When the modification made to the Information Program is accounted for in a different account than the initial registration.

05/01/02	Game No. 1
	Modification of Computer Programs	$ 4,530.00
	Accounting program	588.90
	IVA TAX CREDIT		$ 5,118.90
	Banks
	Bank x
	V / Purchase of Computer Program for the commercial area and Human Resources to complete the integrated system of the company.

Example No. 2 (taking into consideration paragraph 7 of SIC - 6)

On May 1, 2003, the company La Pirámide SA De CV, signed a contract with COMPUSOFT for the development of a program for the marketing area and another for the Human Resources area, which include the following modules:

Inventories Billing and Sales Accounts Receivable Preparation of Worksheets

The price for both programs is $ 3,755.00 plus VAT within the contract the following was agreed:

Installation time: 2 months End of the first month: First advance End of the second month: Complete installation Payment method: At the time of signing the contract an advance of 20%, the rest will be paid at the end of the work.

05/01/02	Game No. 1
	Software		$ 751.00
	VAT - to be applied		97.63
	Banks			$ 848.63
	V / Registration for advance payment to TECNISOFT of 20% with check # xxxx
05/01/02	Game No. 2
	Software		$ 1,502.00
	VAT - to be applied		195.26
	Debts to pay COMPUSOFT	$ 1,697.26		$ 1,697.26
	V / Registration of the obligation for the delivery of the first advance.
05/01/02	Game No. 3
	Computer Programs in Process		$ 1,502.00
	VAT - to be applied		195.26
	Debts to pay COMPUSOFT	$ 1,697.26		$ 1,697.26
	V / Registration of the obligation for the total delivery of the programs
05/01/02	Game No. 4
	Software		$ 3,755.00
	IVA TAX CREDIT		488.15
	Debts to pay TECNISOFT	$ 3,394.52	3,394.52
	Software			$ 3,755.00
	VAT - to be applied			488.15
	Banks			3,394.52
	V / Registration for the payment to TECNISOFT for two programs for the area of marketing and Human Resources s / ch # xxx.

Case II

When the modification made to the Information Programs is considered an expense.

On May 1, 2002, a resource is added to the payroll module by means of which information regarding the Income Tax withholdings can be transferred according to the electronic form F - 910 at a price of $ 137.15 plus VAT.

12/31/00	Item No.
	Administration Expenses	$ 137.15
	Maintenance of the Accounting System	17.83
	IVA TAX CREDIT
	Banks		$ 154.98
	Bank x
	V / Payment for adding resources to the payroll module.

Case I

Restated proportionally to the change in the asset's gross book value.

Intangibles

Software

Computer Program Cost $ 6,060.00

(-) Accumulated Amortization 1,616.00

book value $ 4,444.00

(-) Revaluation $ 5,500.00

Real Revaluation $ 1,056.00

Amortization Proration:

Cost: $ 6,060.00 x 0.22709 = $ 1,376.19

Revaluation: $ 1,056.00 x 0.22709 = $ 239.81

$ 1,616.00

Outcome:

Computer Programs $ 6,060.00

(-) Amortization 1,376.19 $ 4,683.81

Revaluation of Computer Programs $ 1,056.00

(-) Amortization 239.81 $ 816.19

$ 5,500.0

Revaluation Record

CONCEPT	SHOULD	TO HAVE
GAME No. 2
Revaluation by Computer Programs Revaluation surplus	$ 1,056.00	$ 1,056.00
V / Registration for revaluation.

RESULTS

	INITIAL	REAL REVALUATION	ADJUSTMENT	NEW VALUE
COST	$ 6,060.00	$ _____	$ (1616)	$ 4,444.00
AMORTIZATION	(1616)	______	1,616	____
REVALUATION	-	1,056.00	_____	1,056.00
VALUE IN BOOKS	$ 4,444.00	$ 1,056.00	$ 0.00	$ 5,500.00

CONCEPT	SHOULD	TO HAVE
GAME No. 2
Revaluation by Computer Programs Revaluation surplus Revaluation Amortization	$ 1,295.81	$ 1,056.00 $ 239.81
V / Registration by revaluation of the computer program.

MAJORIZATION

Computer Programs $ 7,355.81

(-) Amortization 1,855.81

Book value $ 5,500.00

Compensated with the gross book value of the asset, so that the resulting net value is expressed up to the revalued amount.

Your registration:

* Cancel amortization against the cost of the good

CONCEPT	SHOULD	TO HAVE
GAME No. 1
Accumulated amortization Software	$ 1,616.00	$ 1,616.00
V / Cancellation of accumulated amortization.

Deterioration of the software

Definitions

Recoverable amount of an asset: it is the higher between its net sale price and its value in use Depreciable amount of an asset: it is its historical cost, or the amount that replaces it in the financial statements, after deducting its residual value. impairment: is the amount by which it exceeds the book value of an asset, its recoverable amount.

IAS 36 requires recognition of an impairment loss whenever the carrying amount of the asset in question is greater than its recoverable amount. This loss should be treated as a charge in the income statement if the assets in question are accounted for at their acquisition price or cost of production, and as a decrease in the revaluation surplus accounts if the asset is accounted for at its revaluation.

The company must evaluate, on each balance sheet date, if there is any indication of impairment in the value of its assets. If any indication is detected, the company must estimate the recoverable value of the asset in question.

The concept of materiality applies when determining whether it is necessary to estimate the recoverable amount of an asset.

The best evidence of the net sale price is the existence of a price, within a formal sale commitment, in a free transaction, adjusted for the incremental costs that could be directly attributable to the disposition of the asset.

Recognition and measurement of impairment loss.

The book value of an asset must be reduced until it reaches its recoverable amount if, and only if, this recoverable amount is less than the book value. Such reduction is designated as an impairment loss.

The impairment loss should be recognized immediately as an expense in the income statement, unless the asset in question is accounted for at its revalued value. Impairment losses on revalued assets should be treated as a decrease in the revaluation practiced.

If there is any indication that an asset may have impaired its value, its recoverable amount must be estimated for the asset individually considered. If it is not possible to estimate the recoverable amount of the individual asset, the company must proceed to determine the recoverable amount of the cash-generating unit to which such element belongs.

The cash generating units must be identified in all periods in a homogeneous way, and formed by the same asset or types of assets unless a change is justified.

The recoverable value of a cash-generating unit is the higher value between the unit's net sales price and its value in use.

Reversal of impairment losses.

A company must assess, at each balance sheet date, whether there is any indication that the impairment loss recognized for assets in previous years no longer exists or has decreased.

The impairment loss recognized for the asset in previous periods must be reversed if, and only if, there has been a change in the estimates used to determine its recoverable amount since the aforementioned was last recognized. lost. If this is the case, the asset's book value must be increased until it reaches its recoverable amount.

The new book value of an asset, after the reversal of an impairment loss, must not exceed the book value that could have been obtained (net of amortization) if the impairment loss had not been recognized for it in previous periods.

The reversal of an impairment loss on an asset must be recognized as income immediately in the income statement, unless the asset is accounted for at its revalued value. Any reversal of an impairment loss on a previously revalued asset should be treated as a revaluation increase.

Work submitted by:

Marta Lilian Linares Rivera

[email protected]

COMPUTERIZED ACCOUNTING SYSTEMS

Contributed by: Marta Lilian Linares Rivera

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