SIC 32 provides detailed guidance on
the development of a website by an entity and it states that a website is
developed by an entity using the internal and external expenditure either for
the internal access or external access shall be dealt as internally generated
intangible as per the requirements of IAS 38 – Intangible assets.
As per SIC 32, the following are the
stages of website development:
Planning
Application and infrastructure
development
Graphical design development
Content development
Operating
SIC 32 shed light on the accounting
treatment for the internal expenditure on each of the above stages of the
website development and operation:
A website that is developed
internally shall be recognized as internally generated only when the cost of
the development and operation of a website fulfills the requirements of the IAS
38- Intangible assets in respect of the development cost.
In addition to fulfilling the
requirements of the development cost mentioned in IAS 38- Intangible asset in
respect of the internally generated intangible asset, an entity shall also
assess how and when he website will generate revenue either from the placement
of orders on the website, promoting someone’s else brands or services on its
website or to generate revenue from the advertisement agencies like google
AdSense to run advertisements on website of an entity.
Once the website is developed then
all the subsequent expenditures incurred on the maintenance of a website shall
be recognized as expenses in the financial statements.
Any expenditure that is incurred by
an entity on its own website shall be accounted for in accordance with the
requirements of the IAS 38- Intangible assets.
The nature of each activity for
which expenditure incurred shall be evaluated and assessed and appropriate
accounting treatment shall be adopted according to the nature of the activity.
Guidance on each of the above phases
of the website development and operation is discussed as below:
Planning
The expenditure incurred on the
planning stage of a website shall be expense out as incurred.
Application and Infrastructure
development
The expenditures incurred on the
application and infrastructure development shall be included in the cost of the
website and should be recognized as an intangible asset once the website is
getting ready for its intended use. For example, the purchasing of basic
them and some specific applications that are necessary to run the website shall
be added to the cost of a website and should not be an expense out.
Graphical design development
Graphical design plays a vital role
in the overall look and beauty of a website and would attract users. Therefore,
the cost of the graphical design shall be included in the overall cost of
a website and shall be recognized as part of the internally generated
asset.
Content development
Expenditure incurred on the content
development to promote enterprise own products or services or to promote
someone’s else products or services or for the advertisement purpose shall be
recognized as an expense and should not be included in the cost of the
website.
Operating
This stage begins once the website is complete and intended for use. All the expenditure incurred on the operating stage shall be expense out and should not be included in the cost of the website unless the criteria for the development cost mentioned in the IAS 38- Intangible asset are met.