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It seems like the amortizing over the lifetime of a capital asset is what is tricky for software, not that some businesses operate with very small profit margin
by floxy 1y ago
It seems like the amortizing over the lifetime of a capital asset is what is tricky for software, not that some businesses operate with very small profit margins. For the example given, that must have been a hyper-competitive area; continued yearly improvements of $900,000 was not enough to increase sales. So at year 6 the owners got rid of the engineering staff. What happens to revenue? Did all the competitors die at year 5, and so years 6 through 25 still have $1 million in revenue? Or with no continuous improvements, did sales and revenue drop to $0? In one case it seems like the right asset lifetime for the software could be 20 years, and the other case, 1 year.
- eadmund 1y agoI really liked the suggestion someone else posted in a discussion, that IP-encumbered assets should require amortisation of expenses over the lifetime of the IP (and of course the owner can always immediately write them off by releasing the IP instead). But I do wonder what the effect on smaller shops would be.