The invention of the computer and all the necessities that come along with it has changed the nature of what constitutes an asset for an accountant over the years. Although a computer is considered as a fixed asset, some of the essentials that come along with it are, in general terms, unclassifiable. One example would be the classification of software.
Some people probably do not have a certain idea of what software is. Software is "the entire set of programs, procedures, and related documentation associated with a system, especially a computer system." It is a series of instructions to the computer which allow the user to do specific tasks. In simple words, software is a computer program.
This critique focuses on the classification of software on the financial statements and whether or not it should be capitalized.
SYNOPSIS.
The main concern of the article is the classification of software. Originally, Financial Accounting Standards 13 excluded software as an asset. However, SOP 98-1 has reclassified software as an asset that should be capitalized upon acquisition if material.
According to Joe Sebik, CPA, software can indeed be capitalized because it can be leased. FAS 13 defines a lease as "an agreement conveying the right to use property, plant or equipment (land or depreciable assets or both) for a stated period of time. A lease can be either a capital lease or an operating lease. Accounting treatment by the lessor and the lessee are different in each case, and accountant should exercise prudence as to whether such lease should be classified as a capital lease or an operating lease.
In the end, Joe Sebik concluded that software can be capitalized and that it can be leased.
COMPARISON WITH CLASS DISCUSSION.
Although discussion in class did not include the accounting procedures for leases, we have come across the topic once or twice during our discussion about property, plant and equipment and intangibles.