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:
Application and infrastructure development
Graphical design development
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:
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.
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.
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.