How was this software created

Accounting for software


While there is an activation requirement for intangible assets acquired in return for payment, a capitalization option is granted for internally generated intangible assets. According to Section 248 II of the German Commercial Code (HGB), intangible fixed assets that were not acquired for consideration can be capitalized. As a result, it must first be assessed whether the software is a tangible or an intangible asset. In the case of an intangible asset, it must be determined whether this asset was acquired for a fee or whether it was created in-house.

In the context of the classification of software for accounting purposes, a fundamental distinction must be made between
(a) Firmware (program modules connected to the computer that connect hardware and software and control the elementary functions of the computer): is to be activated as a dependent part of the hardware in property, plant and equipment.
(b) System software (Totality of the programs combined in the operating system): is to be activated as an intangible asset.
(c) Application software (Generic term for all programs that solve the data processing tasks of the user. A distinction is made here between standard and individual software).

Accounting of standard software

1. Self-developed software for in-house use: Activation option according to § 248 II HGB.

2. Standard software purchased for personal use: If the buyer acquires a license to use certain standard software, this is to be capitalized with its acquisition costs in the fixed assets under the item "Concessions, industrial property rights and similar rights and values". If, on the other hand, it is a contractual relationship similar to a rental (e.g. temporary use against current payment), activation is not permitted. The remuneration to be paid on an ongoing basis is to be offset as an expense when the service is provided.

3. In-house or purchased software for external needs: In principle, current assets are capitalized regardless of whether the software is being marketed anonymously or whether it is an individual contract production.

Accounting of individual software

1. Self-developed software for in-house use: Activation option according to § 248 II HGB.

2. Software created by a third party for in-house use: A distinction must be made here between software that was created within the framework of a service contract concluded by the software user with a software provider and software that was created within the framework of a contract for work and services. If the software is created within the framework of a service contract, it is in-house production. Production costs may consequently be capitalized. A characteristic of the service contract is that the software user bears the economic risk of unsuccessful implementation of the project. Individual software that was created on the basis of a work contract is to be capitalized in fixed assets at acquisition cost. In addition to the payment for the delivery, the acquisition costs also include the costs of implementation, if this was carried out by the manufacturer or another software provider.

3. Custom software created for external needs: It is to be treated according to the above criteria for standard software that was developed for external needs.

Scope of the acquisition costs

In addition to the purchase price, the acquisition costs of software also include expenses for the implementation of operational readiness.

Follow-up evaluation of software

Software has to be written off according to schedule due to its limited usability. Scheduled depreciation begins at the point in time when operational readiness is established. The time of actual use is not relevant. Unscheduled depreciation can be considered if a permanent decrease in value can be assumed.

Individual problems

1. Measures to expand or improve software: If the economic risk of implementing the expansion or improvement measures lies with the software user, the subsequent production costs incurred for this must not be capitalized. However, if the manufacturing risk remains with a third party, there are (subsequent) acquisition costs that must be capitalized.

2. Customizing: Customizing includes parameterization and other measures to embed the software in the specific operational environment. A distinction must be made between expenses for measures that are used to put standard software into an operational state and expenses that are made for extensive processing and supplementation of the software delivered in the standard configuration. The former are to be capitalized as acquisition costs; the latter are not part of the acquisition costs, as long as it is not an extension or significant improvement for which a third party bears the manufacturing risk.

3. Release changes and updates: Expenses for release changes and updates, i.e. the discounted provision of the latest program version for users of the old version, are to be recorded as ongoing maintenance expenses, provided that the main focus is on maintaining functionality. If, on the other hand, release changes and updates lead to a profound revision of the previous program version, a new asset is acquired, which is to be capitalized at its acquisition cost if the requirements are met. The old program is to be written off unscheduled.

Accounting of software according to US-GAAP and IAS / IFRS

In accordance with the provisions of the German Commercial Code (HGB), US-GAAP and IAS / IFRS also distinguish between purchased and self-developed software and between software that is intended to serve the company on a permanent basis and is therefore to be capitalized in fixed assets and software that is intended for sale and consequently is capitalized in current assets.