Recognition of research and development costs for software and website

On 1 January 2022, Company A invested in research and development for a customer relationship management (“CRM”) system and website project.

Keywords: Mazars, Thailand, CRM, Intangible Asset, Software and Website Costs, Research and Development

10 March 2023

Scenario

This project was finished and fully implemented in June 2022. Company A paid the following costs for this project:

	Unit: Thai baht
Description	Total amount	Total costs
Planning and research phase		650,000
Software and website development costs include:
Salaries and other benefits of employees related to this project	300,000
E-commerce website costs	400,000
Graphical design and content development costs	300,000
Platform design costs	200,000
Other costs related to the CRM system	150,000	1,350,000
Total		2,000,000

The management of Company A believed that implementing the CRM software and launching the website would help it generate and increase income by 10% for the next three years compared to the previous year.

Issue

How should Company A recognize these costs?

Response

Paragraphs 54 and 57 of TAS 38 and the interpretation of TFAC relating to TAS 38 state the following:

No intangible asset arising from research (or from the research phase of an internal project) shall be recognized. An expenditure on research (or on the research phase of an internal project) shall be recognized as an expense when it is incurred.

An intangible asset arising from development (or from the development phase of an internal project) may be recognized as an internally generated intangible only if the entity can demonstrate:

the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete the intangible asset and use or sell it;
its ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset;
its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Therefore, Company A should recognize the costs as follows:

Planning and research stages: The costs of THB 650,000 incurred should be recognized as an expense in the profit and loss statement when they are incurred.

Software and website development stages: The costs of THB 1.35 million incurred in these stages should be recognized as intangible assets (the website and CRM system). Amortization must be calculated based on the useful lives of the software and website (three years) and their ability to generate income for the Company, as determined by the management.

References (in Thai): www.fap.or.th and https://acpro-std.tfac.or.th/uploads/files/TAS38-Manual.pdf