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When is a website considered an asset on a company's balance sheet?
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6 Answers
Short answer -- almost never, maybe never for sure.
GAAP does allow for certain software to be capitalized if it's for internal use or a packaged system to be commercialized. Specific rules apply for when and how to capitalize and the period to amortized capitalized costs.
But it would be hard to find the GAAP language to allow for capitalizing a website. For the purpose of this discussion, I'm assuming we're talking a generic business website, your cyberspace store front, not a SaaS-Based system like Sales Force or Intacct where the development costs for those subscription-based sites were capitalized.
In general, a website is an intangible asset ... similar to a brand, a customer list, and so on. Those items are not capitalized either, but they certainly add value to the business iteself.
I agree with Mark. The website would not be an asset. It's value would flow to goodwill, or some other intangible asset, at best. However, a domain name may be an asset, if it had a material cost.
If you purchased a business and valued its website then you may have an asset that you could capitalize and then assess for impairment (decrease in value) annually. Mark's asset is on the money, though.
If you can incontrovertibly show (to the Tax Man) that the availability of this website adds to your business value, it can be shown. This will become an intangible asset - like goodwill - that has to be costed very accurately and properly. While Goodwill - for newly taken over businesses will be depreciated year to year as the business matures, this will have to computed on a yearly basis Difficult, but not impossible.
There are companies that show their "key employees" as assets on the balance sheet - At the moment I cannot recall the name, but they exist. Again intangible assets.
Firstly, Its important to get an insight on: What is an Asset?
As a basic description it is: anything that can be owned or controlled to generate a value (Cash).
Therefore a website that generates such value is an Asset either via income generation (e-commerce) or value upliftment e.g. increased traffic/increased demand and available buyer with means.
Also in today's market, many organisations website serve as their shop front (Amazon, Last minute e.t.c) therefore if retail shops are viewed as assets then inevitably the website should also be viewed as an asset.
There are four ways a website can be an asset: (1) If you paid for the website development, the cumulative amount spent could be an asset. [see, IAS 38, AICPA SOP 98-1 and EITF Issue No. 00-2, "in U.S. GAAP guidance that relied on the criteria for capitalization for research and development, such as costs of software to be sold, leased, or otherwise marketed, and certain web site development costs."] (2) If you purchased the website, the amount paid is an asset. (3) If you purchase a business via an asset purchase for more than the book value, the difference is allocated to all tangible and intangible assets (including the website). (4) If you donate the website to a charity, the fair market value of the website is a charitable contribution of an asset. For more information, see, http://valucorp.com/valuations/ValuCorp-IntellectualProperty.pdf.
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