Comment by alkonaut
3 years ago
> If they built the software in 1 year for 1,000,000, they would carry an asset of 1,000,000.
Isn't normal accounting principles usually that if a company pays $M salaries, then regardless of whether those salaries paid for an asset or not, they are an expense that's 100% deducted from the income when calculating taxes?
Are we saying that at a company with 2 desks where 1 is a marketing person or accountant and 1 is a software dev, their salaries would deduce differently from the company bottom line, because the software developer is said to create "assets"? Isn't the marketing of that asset likely to be build the value of it in the same way as the research and engineering does?
A quick google search shows that advertising is also a treated as an asset, just like software, at least some of the time
https://www.journalofaccountancy.com/issues/1999/may/maples....
IMO it does make sense to amortize software expenses like other capital expenditures.
It does make some logical sense, but I don't see how it would be worth the hassle, especially when you consider that it only "works" in the long term scenario but creates all sorts of cash flow problems in the short term.
And THAT is the real question. Does it make economic sense long term. I can’t believe I got downvoted by saying from an accounting perspective it makes sense to test it like any other asset. But does it promote a better outcome if we do? We have all sorts of accelerated depreciation schedules for tax purposes, to promote certain activities. Note that for financial reporting purposes it’s possibly what some companies already do. Even though they expense it for tax purposes. We’re just talking about taxable, not GAAP income.
Yes, that is the case. If you’re building a warehouse, the wages paid to the construction workers are capitalized. The wages paid to your accounts payable are probably not capitalized with construction cost.