Ask the Accounting Community

 View Only

  • 1.  Question about capitalizing software development labor for multi-national corporations

    Posted 05-14-2023 05:31 PM

    Are there guidelines on whether a company can capitalize software development labor in one country but not another? For example, if WinCo has software developers in both the US and India working on the same project deliverable, what, if any, would be a valid argument to capitalize the US FTE costs while expensing the India FTE costs? 

    Thanks, and appreciate the thoughts and insights from this community.



    ------------------------------
    Franklin
    ------------------------------


  • 2.  RE: Question about capitalizing software development labor for multi-national corporations

    Posted 05-15-2023 12:51 AM

    This article might help you sort it out: https://www.accountingtools.com/articles/capitalization-of-software-development-costs.html



    ------------------------------
    Ronnie Alexander CMA,CPA,CIA
    Academic
    Missouri City TX
    United States
    ------------------------------

    Original Message


  • 3.  RE: Question about capitalizing software development labor for multi-national corporations

    Posted 05-15-2023 11:21 AM

    Thanks Ronnie. The article gives a good overview of the topic. What I'm wondering is, in practice, is it all-or-nothing, or can a company select what portions of the labor to capitalize? 

    From my original example, if a company has two teams of software developers, one in India and one in the US, working on the same project, can the company choose to only capitalize the costs of the US team? 



    ------------------------------
    Franklin Chiang CMA
    Director/Manager
    Campbell CA
    United States
    ------------------------------

    Original Message


  • 4.  RE: Question about capitalizing software development labor for multi-national corporations

    Posted 05-15-2023 03:22 PM

    One of the secondary (enhancing) qualitative characteristics of accounting information is comparability, which includes consistency. For accounting information to be comparable, accounting principles must be consistently applied. To that end, I would assume that if you capitalize US team costs, it would be consistent to capitalize Indian team costs.



    ------------------------------
    Ronnie Alexander CMA,CPA,CIA
    Academic
    Missouri City TX
    United States
    ------------------------------

    Original Message


  • 5.  RE: Question about capitalizing software development labor for multi-national corporations

    Posted 05-21-2023 02:09 PM

    What we have historically done is follow the tax rules in each country regarding capitalization.  However, if your operations in India roll up into the U.S. return then we follow the U.S. capitalization rules regardless of country of expenditure.



    ------------------------------
    Allan Lyons
    Corporate Officer
    Squire Patton Boggs (US) LLP
    Stow OH
    United States
    ------------------------------

    Original Message