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Frequently Asked Question
November 18 2009 | Filed Under » Accounting, Consumer Goods, Electronics
Should computer software be classified as an intangible asset or part of property, plant and equipment?
In accounting terms, an intangible asset is something of value that is not of physical nature. On the other hand, property, plant and equipment (PPE) are just as the name suggests. PPE refers to physical long-term assets, such equipment that is vital to a company's operations and has a definite physical component. Under most circumstances, computer software is classified as an intangible asset because of its non physical nature. However, accounting rules state that there are certain exceptions that permit the classification of computer software as Property Plant and Equipment (PPE).
Some of the statements that have rules concerning the classification of software include:
Financial Accounting Standards Advisory Board (FASAB) Statement of Federal Financial Accounting Standards (SFFAS) No. 10, Accounting for Internal Use Software. Governmental Accounting Standards Board (GASB) Statement No. 42, Accounting of Costs of Computer Software Developed or Obtained for Internal Use.
There are two general rules that are applied to determine whether or not software must be
