Capitalisation of Website Development Costs

Under FRS 102 website development costs are considered as intangible assets and capitalisation is only allowed if the following criteria are met:

• Development costs meet the definition of an intangible asset

• Expenditure is not on advertising and/or promotional activities

• Your accounting policy is to capitalise development expenditure

• The expenditure meets recognition criteria

Capitalising website development costs

What is an intangible asset?

FRS 102 defines an intangible asset as:

• An identifiable non-monetary asset without physical substance

• Being capable of being separated or divided from the entity

• Arising from contractual or other legal rights

Advertising or promotional activities

Where costs have been incurred to create a website primarily aimed at advertising or promoting an entity's services, such expenditure should be expensed and not capitalised.

If costs have been incurred to create systems such as e-commerce or order processing, these costs may be allowable for capitalisation.

Recognition criteria

FRS 102 permits recognition as an intangible asset only if:

• It is probable that expected future economic benefits directly attributable to the asset will flow to the entity

• The cost of the asset can be measured reliably

• The asset is still in the development phase and the entity can demonstrate:

  • technical feasibility of completing the asset

  • an intention to complete and use/sell the asset

  • how probable future economic benefits will be generated

  • there are sufficient resources to complete development

  • expenditure can be reliably measured

Points to note:

This document is a simplified helpsheet and careful research should be completed if you are unsure.

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