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CapEx or ??? for SaaS Customizations?

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We have entered into a partnership with a company offering a Software-as-a-Service to us.  We can request that they customize the software for us.  If it is something that is exclusive to our needs, we pay $300/hr for the development.  However, if it is something that we don't care if they reuse for their other clients, then we pay $150/hr for the development.  At the $300/hr rate, we technically own the code.  While we can't really do anything with it, we do own the code itself.  I believe that would be CapEx since the code is an asset that benefits us, regardless of the fact that it is not portable.

However, I do not know about the money spent at the $150/hr rate.  It does in fact benefit us, but we do not own anything so there is no asset there.

 

In a similar question.  If we have 50 users using Microsoft's SaaS Office 365 at $20/mo each, where would that fall? Per user it is $240/yr, but for everyone it's $12,000.  So would that be CapEx, or OpEx ?

 

Thank you very much!

Answers

(Agent, JKS Solutions, Inc.) |

The 150/hr is more probable than not system maintenance if it does not add the magic words "additional functionality". There may be multiple elements to consider and if you are reselling the software there is different treatment for the costs accumulated.

The best thing to do is to pull the contract, send it up to your Controller to get a ruling to know for sure where it falls in the scheme of fixed asset accounting and project costing.

Regarding the MS user licenses, you will need to pull the contract and find out the length of each seat license. These would be treated similarly to Prepaid Expenses, recorded as a current asset and amortized monthly. Depending on the amount of the licenses, whether or not they are material will determine if accounting treats them as a prepaid or as OpEx as paid.

It would not be a good idea for me to give you a short answer on this one.

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