[ottodebals]

> that you capitalize costs that provide a benefit over multiple years

Do you see a difference between software development in a consulting business model (instant one-off benefit) and software development in a saas product business model (benefit over multiple years)?

> There are good arguments on both sides. Can you provide the good arguments for capitalizing software development costs and not expensing it?

Can you explain the reasoning of charging taxes to a company that has revenue beyond merely 1/5th of its expenses (actually 1/10th in the first year, or 1/30th for international operations) and hence still heavily investing cash?

[scrozier]

> Do you see a difference between software development in a consulting business model (instant one-off benefit) and software development in a saas product business model (benefit over multiple years)?

Yes. Not sure what that has to do with this discussion.

> Can you provide the good arguments for capitalizing software development costs and not expensing it?

Yes. The well-established accounting principle of matching income and expenses.

> Can you explain the reasoning of charging taxes to a company that has revenue beyond merely 1/5th of its expenses (actually 1/10th in the first year, or 1/30th for international operations) and hence still heavily investing cash?

Yes. See the answer to your second question. Companies often have to make investments. If they buy a Big Machine, they don't get to write it off in one year. There's nothing nefarious about amortizing costs over their useful life.

[ottodebals]

> Yes. Not sure what that has to do with this discussion.

Because the law seems to be very strict that all software development should be capitalized. So would you suggest to split the revenue recognition depending on the corresponding business model of the product corresponding to the software development?

> If they buy a Big Machine, they don't get to write it off in one year. There's nothing nefarious about amortizing costs over their useful life.

It seems the capitalization of the wage of a software developer is being defended and put equal to the capitalisation of the cost of a Big Machine. I still see an unfair difference made in the reasoning. Let’s take following example

* Software developer has a wage cost in year 1 and builds a SaaS tool in year 1. The developer’s useful life w.r.t. the incurred cost is indeed 1 year and the revenue generating period of the product is 5 years.

* Big machine (crane) has a purchase cost in year 1 and builds a warehouse in year 1. The crane’s useful life w.r.t. the incurred cost is 5 years and the revenue generating period of the product is 30 years.

It’s being claimed that both the software developer's first year wage and the Big Machine purchase cost should be capitalised over 5 years. But that’s comparing apples with pears: either both should be capitalised over their own useful life w.r.t. the incurred cost (1 year vs. 5 years) or both should be capitalised over the revenue generating period of their product (5 year vs. 30 years).

Three other thought experiments:

* You should capitalize a crane when you buy it and you should expense when you (properly w.r.t. accounting principles) rent and use it for a year to build something. But when you rent a software developer (= hire) for a year to build something, that should be capitalized?

* When the crane is being sold or breaks down, you recognise a gain or loss and the capitalization stops. When the software developer leaves the company, is the capitalisation of the developer’s wage still continuing?

* I come work for you for the next five years as a software developer, but you have to pay me my wage immediately for the upcoming five years. Also you have to buy a GPU server that I will use to build my product and that will supposedly last 5 years. Are you capitalising both my cost and the GPU over 5 years? Or will you be capitalising my cost way longer than the GPU, even both I’m gone after 5 years and the GPU broke down?