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RBI/2005-06/286
UBD. BPD. PCB. Cir. No. 28 /12.05.001/2005-06
January 24 , 2006
The Chief Executive Officers of
all Primary (Urban) Co-operative Banks
Dear Sir / Madam,
Amortization of expenses incurred
on software - UCBs
Please refer to our circular UBD.
BPD.PCB.Cir.7/09.50.00/2003-04 dated August 5, 2003 in terms of which UCBs are
allowed to charge depreciation on computers on a straight-line method at the
rate of 33.33 per cent per annum. In this context it is observed that there
is no uniform practice among banks in regard to amortization of the cost incurred
towards acquiring software. In order to have uniformity in approach, the matter
has been examined and the following guidelines are issued in regard to the cost
of the software, the period and the method of amortization to be followed in
respect of software expenses.
2. Cost of software
Computer software for internal
use can be developed internally or acquired. The cost of internally generated
software comprises all expenditure that can be directly attributed or allocated
on a reasonable and consistent basis to create the software for its intended
use. The costs include expenditure on materials and services used or consumed,
the salaries, wages and other employment related costs of personnel directly
engaged in developing the software, and overheads that are necessary to develop
the software and that can be allocated on a reasonable and consistent basis
to the software. Selling, administration and other overhead expenditure that
cannot be directly attributable to the development of the software and expenditure
on training the staff to use the internally developed software may not be treated
as components of the cost of an internally developed software:
The cost of software purchased
for internal use comprises its purchase price, including any import duties and
other taxes (other than those subsequently recoverable by the enterprise from
the taxing authorities) and any directly attributable expenditure on making
the software ready for its use. Any trade discounts and rebates have to be deducted
in arriving at the cost.
3. Amortization period / Method
Taking into consideration the fact
that computer software is susceptible to rapid technological obsolescence, UCBs
are advised to amortize the cost of the software over a three-year period by
using straight-line method, i.e.@33.33% annually.
4. Please acknowledge receipt of
this circular to the concerned Regional Office.
Yours faithfully,
(N.S.Vishwanathan)
Chief General Manager In-Charge
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