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CA Final · Financial Reporting · Accounting and Technology

Ishaan Logistics Ltd. uses a SaaS-based fleet management system under a three-year contract. The company only receives the right to access the vendor's software running on the vendor's cloud and cannot take possession of the software or run it on its own hardware. It paid ₹18 lakh upfront for the three years at the start of the year. Applying the IFRIC agenda decision adopted for Ind AS practice on cloud computing arrangements, how should this be treated?

It should be treated as a service contract, with the upfront ₹18 lakh recognised as a prepayment and expensed over the three-year service period. The company has no right to take possession of the software, so there is no intangible asset, lease or property, plant and equipment.

  1. AAs a service contract, with the prepayment recognised as an expense over the three-year service periodCorrect
  2. BAs an intangible asset amortised over three years
  3. CAs a finance lease right-of-use asset under Ind AS 116
  4. DAs property, plant and equipment depreciated over three years

Explanation

Since the company has no right to take possession of the software or control it, there is no intangible asset or lease. The arrangement is a service contract, so the payment is a prepayment expensed as the service is received, which is ₹6 lakh each year.

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