This blog is written by Mr. Ahmed Yar Khan, Senior Manager Audit and Assurance. Please read this blog and provide your valued comments.

Intangible Assets — Web Site Costs

SIC Interpretation 32


SIC-32 concludes that a website developed by an entity using internal expenditure, whether for internal or external access, is an internally generated intangible asset that is subject to the requirements of IAS 38 Intangible Assets.

  • web site designed for external access may be used for various purposes such as to:
  • advertise products and services,
  • provide electronic services, and
  • sell products and services
  • A web site designed for internal access may be used to:
  • store company policies/customer details, and
  • search relevant information.
Stages of a web site’s development
  1. Planning – undertaking feasibility studies, defining objectives and specifications, evaluating alternatives and selecting preferences.
  2. Application and Infrastructure Development –obtaining a domain name, purchasing and developing hardware and operating software, installing developed applications and stress testing.
  3. Graphical Design Development – includes designing the appearance of web pages.
  4. Content Development –creating, purchasing, preparing and uploading information, either textual or graphical in nature, on the web site before the completion of the web site’s development
  • Once website development is completed, the operating stage begins (in this stage the company maintains the website)
  • The cost of purchasing, developing, and operating hardware (e.g. servers and Internet connections) of a web site are accounted for as property, plant and equipment (IAS 16)
  • This section also doesn’t apply to situations where you are in the business of creating websites for others
  • Expenditure on an Internet service provider hosting the entity’s web site is expensed.

To capitalize the costs of website development you need to meet the following criteria:

  1. It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity
  2. The cost of the asset can be measured reliably
  3. Must meet criteria for capitalizing development phase costs:
  • The technical feasibility of completing the website
  • Its intention to complete the website and use it
  • Its ability to use website
  • How the website asset will generate probable future economic benefits
  • The availability of adequate technical, financial and other resourcesto complete the development and to use the website
  • Ability to measure the expenditure attributable to the website during its development
  • An entity is not able to demonstrate how a website developed primarily for promoting and advertising its own products and services will generate probable future economic benefits; all expenditure on developing such a website shall be recognized as an expense when incurred.
Stages of website development and accounting Treatment
Stage Accounting Treatment
Planning Stage
  • Treated like research costs
  • Planning stage expenses are expensed
Application and Infrastructure Development stage, Graphical Design stage, Content Development stage
  • Capitalized as an intangible asset long as the expenditure is  not for advertising entity’s products on the website (i.e. photographs of products) and can be directly attributed to the website development
Operating stage
  • Expensed
Subsequent Measurement
  • Follow IAS 38 and use the cost model or the revaluation model (usually cost model is used).
  • SIC 32 recommends that the best estimate of a web site’s useful life should be short.

Ahmed Yar Khan