Capitalizing software and cloud computing

What is the accounting treatment when an entity incurs costs on existing fixed assets? When should it be expensed and when can it be capitalized?

Keywords: Mazars, Thailand, Accounting, ERP, Software Licence, Cloud computing, TFRS, NPAEs

13 December 2018


Company A is a subsidiary of an overseas parent company. To meet business and operational needs, Company A will change software to an ERP system during the first quarter of 2019.  

Company A has entered into a software implementation service agreement with a related-party company (“the Provider”) valued at THB 50 million. Details of the agreement are as follows:

1. The Provider will provide hardware to, and install the hardware for, Company A. The cost of the hardware is THB 7 million.

2. The Provider will provide software to, and install the software for, Company A as well.

3. The Provider will provide technical support related to the ERP system to Company A.

4. The Provider will customize reports to support Company A’s operations as needed.

5. Company A will not take possession of the software or any related technology, technical information, and/or intellectual property, but these will be owned by the Provider.

6. This project will be finished in 2019.

In addition, Company A signed a cloud computing agreement and an agreement for maintenance fees for three years (2019 to 2021) with the Provider, and pays up-front fees of THB 10 million and THB 4.5 million, respectively, to the Provider.


1. How should these transactions be treated in the financial statements for the year ended 31 December 2019?

2. Is it possible for Company A to recognize the up-front fees and maintenance fees totalling THB 14.5 million as expenses in its statement of income for 2019?


Answer to question no. 1

Paragraph 26.1 of the Thai Financial Reporting Standards for Non-Publicly Accountable Entities (TFRS for NPAEs) states:

  • An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. Recognition of assets must meet all of the following recognition criteria.

         -  It is probable that the future economic benefits will flow to the entity.

         -  The item has a cost or value that can be measured reliably.

TFRS for NPAEs do not state that a company must have the legal rights to the asset. Future economic benefits will flow from the assets to Company A, and the cost of the assets can be measured reliably.   

Therefore, Company A’s purchases of hardware and software for THB 50 million can be capitalized as tangible and intangible assets in the financial statements in 2019 and depreciated over their economically useful lives.

Answer to question no. 2

Paragraph 27.2 of the TFRS for NPAEs states:

  • Expenses are recognized when a decrease in future economic benefits related to a decrease in assets or an increase in liabilities has arisen that can be measured reliably.

The Company should amortise expenses over the length of the agreement and therefore cannot fully expenses in 2019.  

Reference: TFRS for NPAEs