Philosopher Stone Inc. incurred costs of $20,000 to develop an intranet Web site for internal use. The

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Philosopher Stone Inc. incurred costs of $20,000 to develop an intranet Web site for internal use. The intranet will be used to store information related to company policies, customers, and products. Access to the intranet is password-protected and is restricted to company personnel. As the company's auditor, you have been asked to determine whether Philosopher Stone can capitalize the Web site development costs as an intangible asset or whether the company must expense the costs in the period in which they were incurred. Your research finds that SIC 32, Intangible Assets-Web Site Costs, indicates that a Web site developed for internal or external use is an internally generated intangible asset that is subject to the requirements of IAS 38. Specifically, SIC 32 indicates that the recognition criteria in IAS 38 related to development costs must be satisfied. The criterion most in question is whether the company can demonstrate the usefulness of the intranet and how it will generate probable future economic benefits.
Required:
Develop a justification for why Philosopher Stone should, or should not be allowed to account for the intranet development costs as an intangible asset.
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International Accounting

ISBN: 978-0077862206

4th edition

Authors: Timothy Doupnik, Hector Perera

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