Treatment of mobile application development costs

Keywords: Mazars, Thailand, Accounting, Mobile, Application

4 September 2023

The management of Company A believes that implementing this mobile application will help it increase income by 25% over the next five years.

Company A had the following internal expenses for this project:

Description	Total costs (THB)
Planning and research phase	350,000
Development phase Application and Infrastructure development Graphical design development Content development	550,000 600,000 380,000
Operating costs	150,000
Total	2,030,000

Issue

How should Company A recognize and amortize these costs?

Response

Paragraphs 11.1, 11.2, 11.14, 11.16 of the TFRS for NPAEs (revised 2022) related to internally generated intangible assets state the following:

Internally generated intangible assets shall not be recognized as intangible assets. Such expenditures shall be recognized as expenses in the income statements of the periods in which they are incurred unless such internally generated intangible assets meet the criteria for recognition.
To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into two phases:

a research phase; or
a development phase.

Research is an original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.

Development is the application of research findings or other knowledge to a plan and design for the production of new or substantially improved materials, devices, products, processes, systems, or services before the start of commercial production or use.

No intangible asset arising from research or from the research phase of an internal project shall be recognized. Expenditures on research or on the research phase of an internal project must be recognized as expenses when they are incurred.

An intangible asset arising from development (or from the development phase of an internal project) may be recognized as an internally generated intangible asset 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; and
its ability to measure reliably the expenditure attributable to the intangible asset during its development.

As noted above, Company A should recognize the costs as follows:

Stages of mobile application development:	Total costs (THB)	Recognition
Planning and research phase	350,000	Expenditures incurred at this stage should be recognized as expenses when they are incurred.
Development phase
Application and infrastructure development	550,000	Expenditures incurred at these stages should be included in the cost of a mobile application recognized as an intangible asset in accordance with this Interpretation when the expenditures can be directly attributed, or allocated on a reasonable and consistent basis, to preparing the mobile application for its intended use. Also, the amount of capitalization must be capped at the revenue benefit expected. In this case, we assume that the expected revenue over the next five years is more than 1.15 million. Therefore, we will recognize the cost of a mobile application in full amount.
Graphical design development	600,000
Content development	380,000	Expenditures incurred at the content development stage, to the extent that content is developed to advertise and promote Company A’s products and services, should be recognized as expenses when they are incurred.
Operating phase
The operating stage begins once the development of a mobile application is complete	150,000	Expenditures incurred at this stage should be recognized as expenses when they are incurred.
Total	2,030,000

Amortization must be calculated based on the useful life of the mobile application (five years) and its ability to generate income for the Company, as determined by the management.

Reference: TFRS for NPAEs (revised 2022) www.tfac.or.th