Ind AS 38 Appendix A: Web Site Costs (SIC 32 Equivalent)

Understand Web Site Costs (Appendix A, SIC 32 equivalent)

Key rules to remember

Classification rule

Web site developed for own use = internally generated intangible asset (Ind AS 38)

Apply research and development phase rules stage by stage.

Planning stage

Planning stage cost → expense

Same as research phase: feasibility, objectives, specifications, supplier selection.

Development stages

Application/infrastructure + graphical design + content (non-advertising) → capitalise if Ind AS 38 criteria are met

Criteria include technical feasibility, intention and ability to complete and use, probable future benefits, resources, and reliable measurement of cost.

Promotion-only site

Site mainly to promote own products/services → all cost expensed

Probable future economic benefits cannot be demonstrated.

Operating stage

Operating cost (maintenance, updating) → expense unless asset criteria are met

Costs of enhancing functionality may qualify as capitalisable.

Cost and amortisation

Cost = directly attributable cost of the development stages; amortise over useful life

Useful life should be short, as per Appendix A guidance, and amortisation starts when the site is ready for use.

Advertising and promotion

Advertising and promotional spend → expense as incurred

Includes content developed to advertise the entity's own products.

How to solve Web Site Costs (Appendix A, SIC 32 equivalent) questions

1. 1Check the purpose of the web site. If it is developed solely or primarily to promote and advertise own products or services, expense all costs and stop.
2. 2List each cost item and tag it to a stage: planning, application and infrastructure, graphical design, content, or operating.
3. 3Expense all planning stage costs, as they are treated like research.
4. 4For the three development stages, check the Ind AS 38 recognition criteria for development. If met, capitalise; if not, expense.
5. 5Within content development, separate content meant to advertise or promote own products. Expense that part.
6. 6Expense all operating stage costs such as hosting fees, routine updates and maintenance, unless they meet the asset criteria (for example, a real enhancement of functionality).
7. 7Total the capitalised amount, begin amortisation when the site is ready for use, and use a short useful life with no residual value unless there is a basis for one.
8. 8Compute the expense for the year, including amortisation for the period, and state the final carrying amount.

Quickest way: Stage-tagging shortcut

Common mistakes in Web Site Costs (Appendix A, SIC 32 equivalent)

• Capitalising feasibility study and planning costs because the site eventually goes live.

  Students treat the whole project as one asset.

  Fix: Planning is always the research equivalent. Expense it, even if the project succeeds.

• Capitalising content that is meant to advertise the entity's products.

  Content development is on the list of capitalisable stages, so students stop reading there.

  Fix: Capitalise content only to the extent it is not for advertising or promotion. Always split the content cost.

• Capitalising all costs of a purely promotional site.

  Students focus on the stage and ignore the purpose of the site.

  Fix: Check purpose first. If the site mainly promotes own products, expense everything.

• Capitalising routine operating costs such as hosting and updating.

  These costs look like they keep the asset working.

  Fix: Operating stage costs are expensed unless they meet the asset recognition criteria, for example by adding new functionality.

• Starting amortisation on the date spending began.

  Students confuse the capitalisation start with the amortisation start.

  Fix: Amortise from the date the site is available for use, not from the first spend.

• Applying the old AS 26 wording or ignoring Ind AS 38 criteria.

  Older notes still circulate.

  Fix: Cite Appendix A to Ind AS 38 and the development-phase recognition criteria of Ind AS 38.

Worked examples