Large software financings can be considered as a fixed asset or as property, plant and equipment. Property, plant and equipment, as defined by the International Accounting Standards No. 16, "are tangible assets which are held by an enterprise for use in production or supply of goods and services, for rental to others, or for administrative purposes, and are expected to be used during more than one period." I am concluding that software is a fixed asset simply because it is tangible; it can be seen and used. And because the software constantly changes over time, it is also depreciable. Software can be used for several things; it can be used for administrative purposes and it can even be rented or leased.
According to the article, FAS 13 excluded software as an asset. Recently, SOP 98-1 has reclassified software as an asset that must be capitalized upon acquisition. Most people are wondering on what the right accounting treatment should be because, as per standards, software should not be classified as an asset. The article agreed that software should indeed be capitalized, the main argument of the author stems from the fact that software can be leased, hence, it is an asset.
Under International Accounting Standard No. 17, a lease is "an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time." In a lease agreement, one party called the lessee is granted the right by the lessor to use the property of the latter for a specific period of time in consideration for a certain payment in the form of rent. As said before, there are two kinds of lease: the operating lease and the capital lease.
The accounting for operating lease merely treats periodic payment of rent as rent expense on the part of the lessee and rent income on the part of the lessor. The ownership is retained by the lessor, hence, the asset is recorded as such in his books and not on the books of the lessee.
