We've got an asset account, and a couple of expense accounts, depreciation and maintenance. So the depreciation transactions are from some kind of assessment of the asset's value over the full lifetime (read: will anyone still use this Android app in 10 years?) while the maintenance transactions are from the actual costs to keep the asset operational.
Depreciation isn't really about quality or value, rather lifetime expectation. As a consumer buying a cheap vacuum cleaner you are knowingly buying a product that depreciates at a higher rate. You can maintain that vacuum cleaner for a lifetime if you wish but those are separate expenses.
So in terms of software, if you should be rushing something out the door in order to try and find product-market fit, do so with the knowledge that you are creating an asset with a shortened expected lifetime, ie, that depreciates at a higher rate. As you transition from prototype to a more robust system you adjust the rate the depreciation to match.
You can choose to keep maintaining the prototype but the costs of doing so are probably more than the enhancement costs that are offset by increased capitalization. But again, do you expect anyone to be using your Android app in 10 years?
The accounting practices in software are much different than thinking about a widget factory so I do get the sense we could using some innovation in the field.
We've got an asset account, and a couple of expense accounts, depreciation and maintenance. So the depreciation transactions are from some kind of assessment of the asset's value over the full lifetime (read: will anyone still use this Android app in 10 years?) while the maintenance transactions are from the actual costs to keep the asset operational.
Depreciation isn't really about quality or value, rather lifetime expectation. As a consumer buying a cheap vacuum cleaner you are knowingly buying a product that depreciates at a higher rate. You can maintain that vacuum cleaner for a lifetime if you wish but those are separate expenses.
So in terms of software, if you should be rushing something out the door in order to try and find product-market fit, do so with the knowledge that you are creating an asset with a shortened expected lifetime, ie, that depreciates at a higher rate. As you transition from prototype to a more robust system you adjust the rate the depreciation to match.
You can choose to keep maintaining the prototype but the costs of doing so are probably more than the enhancement costs that are offset by increased capitalization. But again, do you expect anyone to be using your Android app in 10 years?
The accounting practices in software are much different than thinking about a widget factory so I do get the sense we could using some innovation in the field.