In the research phase of an internal project it is not possible to demonstrate that the project will generate future economic benefits and hence all expenditure on research is recognised as an expense when it is incurred. Intangible assets are recognised from the development phase of a project if and only if certain specific criteria are met in order to demonstrate the asset will generate probable future economic benefits and that its cost can be reliably measured. The capitalised development costs are subsequently amortised to profit and loss account on a straight line basis over their expected useful economic lives, which range from 1 to 5 years.
If it is not possible to distinguish between the research phase and the development phase of an internal project the expenditure is treated as if it were all incurred in the research phase only.
Costs that are directly related to the development of the software, such as coding, consulting fees, adding features, and programmer compensation, are capitalised. The directors have identified development costs that meet the following criteria.
- There is a clearly defined project
- expenditure is separately identifiable
- the project is commercially viable
- the project is technically feasible
- project income is expected to outweigh cost
- resources are available to complete the project.