Skip to content

CA Final · Financial Reporting · Accounting and Technology

Mehta Infra Ltd uses a cloud-based accounting package under a software-as-a-service (SaaS) contract. The company's accountant observes that the service provider hosts the software and the company only receives access during the term. For Ind AS reporting, which treatment of the subscription fee is generally appropriate under the IFRIC agenda decision on configuration or customisation costs in cloud computing arrangements, as followed in Ind AS practice?

The subscription should be expensed as the service is received. In a SaaS arrangement the customer has no control over the software, so no intangible asset arises under Ind AS 38, and a service contract is not a lease under Ind AS 116.

  1. ACapitalise the subscription as an intangible asset because the company controls the software
  2. BRecognise the fee as an expense as the service is received, since the company has no control of the softwareCorrect
  3. CRecognise the entire multi-year fee as a right-of-use asset under Ind AS 116
  4. DDefer the fee as goodwill and test it for impairment annually

Explanation

In a SaaS arrangement the customer receives a service and does not control the software, so there is no intangible asset under Ind AS 38. The fee is expensed as the service is received. Treating it as an intangible asset fails because control is absent, and Ind AS 116 does not apply to a service contract.

Did you get it right without looking?

One question tells you little. A timed set on Accounting and Technology shows your real accuracy, how long you take and where you lose marks.

Practise Accounting and TechnologyFree diagnostic mock

More Accounting and Technology questions