Home > Accounting Entries > Assets > Other Intangible Assets > Software and Licenses
Definition:
Software and Licenses are intangible assets used by business entity. IT can be in form of computer license, trademarks, patent rights or internally developed software tools. These are accounted in the same way as Plant, Property and Equipment subject to different terminologies. Software and Licenses have definite life and needs to be amortised over the period of their available tenure. It may take time to generate, construction and deploy such softwares and licenses and thus. during that period, costs incurred are accounted as Capital Work-In-Progress.
General cases, the amortisation takes place on straight line basis unless any other method can be justified and well demonstrated. Intangible assets are also subject to Impairment assessment in case any sign of permanent reduction in value is observed.
Accounting Entries:
Costs incurred to acquire intangible asset:
Software and License A/c DR
Cash/Bank A/c CR
Amount: Costs incurred on acquisition.
Capitalisation of costs incurred till date:
Software and License A/c DR
Capital Work-In-Progress A/c CR
Amount: Costs incurred till date and parked for future capitalisation.
Subsequent expenditure incurred for development improving efficiency:
Software and License A/c DR
Cash/Bank A/c CR
Amount: Costs incurred on acquisition.
Amortisation of intangible asset:
Amortisation Expense A/c DR
Accumulated Amortisation A/c CR
Amount: Amortisation expense computed on straight line basis over the period of asset or any other method justified by business.
Disposal of intangible asset:
Cash/Bank A/c DR
Accumulated Amortisation A/c DR
Loss on Sale A/c DR
Software and License A/c CR
Gain on Sale A/c CR
Amount: If the sale price > net book value of asset, then gain. If the sale price < net book value of asset, then loss.
Net book value = Original value of intangible asset (-) Accumulated amortisation as at sale date.