Domain Names on Balance Sheet

[cirensoftware]

Hello,

I have been informed that you need to include domain names as assets on a balance sheet.

Is this correct?

If so, what value do you give them?

Thanks

 

[paulcreedy]

I'm not sure I would agree with that. Most domain names are technically 'rented' as at the end of the year you either have to pay another annual fee, or give them back to the registrar.

If you were renting a machine, car, premises, etc for your business it wouldn't be an asset as it doesn't belong to you.

Therefore to me, they are an expense as you never truly own a domain name. Whereas with an asset, the asset belongs to you outright.

 

[Enigma121]

There may be an argument for them to be listed as assets as they could be sold at a profit and generally their value tends to increase with age.

Generally assets are "something you can kick" so I don't think that domain names fall into this category.

Not sure, ask an IT literate accountant...

 

[Alpha]

Generally assets are "something you can kick" so I don't think that domain names fall into this category.

So can you kick goodwill ?

Assets are items of expenditure that are used over a period of time usually greater than a year.

For the cost of a domain name I would certainly not treat them as assets.

 

[James Smith]

I would suggest the accounting treatment depends on the type of firm, and how you acquired the domain.

As Paul mentions if you register a "fresh" domain name you are in effect paying nil, and renting it for a fixed period, with ongoing rights to renewal. From a 'matching' point of view you could spread the cost over the rental period, but from a "materiality" point of view you wouldn’t bother (i.e. the values are generally small change and not worth bothering with)

If you buy a domain from a third party this cost could capitalised and depreciated over the useful economic life if it is generating an income for the business. There is actually a UTIF (urgent issues task force) on a similar topic, the number of which I don’t recall off the top of my head, which confirms domains can be classed as “fixed assets” and not “intangibles”.

A typical situation could be the buying of a generic name that people type in (like computer.com) which in itself generates traffic, and therefore has an intrinsic economic value.

For most companies this won’t apply, but I actually have a couple of clients who do capitalise their domain names, two of which actively buy "natural" domain names purely for traffic income purposes. The only assets of the business are quite literally the domains and the websites on them generating the income.

Most companies would of course like to write the domains off as quickly as possible to get the tax deduction…

Probably overkill for the question, but this is quite an interesting topic - well prehaps only if you are an accountant!

Regards,

 

[MichaelG]

James - I did not understand anything you said - is this why accountants and lawyers make so much money?

Can you say everything again in English this time. I have a lot o domain names and this an interesting subject.

I got the point about renting domains

 

[James Smith]

Ooops. sorry I think I slipped into "accountant speak" there.

I will backtrack into client mode.

Basically if your domains have a real value to the business, then yes you can capitalise them at the purchase value, much as you would if you purchased a shop on a prime high street location. They are both potentially expensive assets.

However in 99% of cases you will pay very little for a domain compared to your whole business, and under the principle of "materiality" it doesn’t matter what accounting treatment you chose. I.e. it would make very little difference to the reading of your accounts of the size of your tax bill if you capitalised the domains or expensed them. Given its easier to expense a domain than capitalise it, you would pick the easy route! This is where Alan is coming from above.

Only if you have an awful lot of domains that you purchase (as opposed to register new), or you buy a small number for a big value you would you start to think about capitalisation.

Hope that makes a bit more sense.

PS we generally only get paid lots to make complex things sound simple, not the other way around!

 

[MichaelG]

Ok - enough! there is English and there is English - what you speak is still not English enough for me.

I have lots of domain names - registered from new. Who determines what the true value of a domain name is?

Imagine I had the domain name "computer.com" - if i don't sell it (transfer renewal rights to a 3rd party) - surely that domain name is still only $25/year ... blah blah...

The rights to a domain name is part of the company assets and the company pays for that rights to the domain name every year no?

You got me all confused now...

 

[James Smith]

Ah I think I see where you are getting confused - I am talking about capitalising the COST ie what you pay for the domains, not about actually valuing the domain. Quite another topic.

Accounts are largely based on historical costs - what you pay for it, not current value. So with your example, if you pay $25 its still $25.

If you have bought all the domains all new - i.e. just paid the registration fee - then there wouldn’t normally be any capital value. This only applies if you buy at a premium, ie £20,000 from SEDO, not a new domain from 1&1 for a fiver.

Anyhow I dont know why I am still posting this time of night.

Regards,

 

[Enigma121]

James - I did not understand anything you said - is this why accountants and lawyers make so much money?

Can you say everything again in English this time. I have a lot o domain names and this an interesting subject.

I got the point about renting domains

Hummm and to think they say us technical folks talk a load of gibberish.

These legal types might not know their RTFM from their AFAIK, but can still REALLY tie folks in knots...

 

[Rob Holmes]

So can you kick goodwill ?

Yes usually down the drain

Assets are items of expenditure that are used over a period of time usually greater than a year.

For the cost of a domain name I would certainly not treat them as assets.

IMHO (and I'm not an accountant) an asset is something that creates money for you - in the same way a liability loses you money.

So from a NON accountants point of view and from someone who just says yes to his accountant, in my personal finances a domain name could be either an asset or a liability depending on how much income it generated for you compared to the cost.

Anyway this is one of my few posts in the Accounts and Finance forum, please don't take anything I say seriously as all I know to do is pay my accountant to sort stuff out

hmm so this is what the Accounts forum looks like...

Rob

 

[SuffolkDesigns]

I always put domain names down as basic expenses.

I guess if you had a name like ibm.com it could be classed as an assett though

 

[Rob Holmes]

I guess theres the balance sheet and real life.

On the balance sheet they are an expense..

In real life an asset to the business

Rob

 

[fastfences]

Another interesting topic, with 2 directly opposed views.

If we look at a 'registered' company name, that must be an 'asset' of the company because it is a recognised 'value' - a distinction that identifies one company from another, or, to the extreme, good from bad. Various costs and fees have been expended in 'securing' this name for the company, which, I believe, must be regarded as an asset.

Similarly with a domain name. It is an asset because it identifies the value of the company. The argument against it being 'rented' is somewhat of a furphy; many assets can be rented or leased.

I would like to open the discussion further by illustrating my situation. I own (rent?) fastfences.co.uk, but also for the protection and valueadding of the company I also own/rent fastfences.info and .net and .biz. I would like to think that my accountant will recognise these as assets.

In the long run though, we're only really talking about a few quid. I certainly don't subscribe to the view that one can value a domain name at.say £50.00, although I know some sell for far in excess of that.

Cheers, Nigel

 

[Alpha]

Look lets just clear up the misconception that is growing from this thread.

there are not really two different views about whether it is an asset by its nature....I believe that we all agree that it is a business asset.

The discussion really revolves around whether we would for tax purposes classify it as an asset.

Nigel

If you wish your £10 for your domain name to be written off against your tax over around 10 years then by all means your accountant will classify it as an asset however, if you wish to get the benefit of writing off your £50 against tax in the year that you pay it then it will be a revenue expense.

the choice is yours

 

[fastfences]

Look lets just clear up the misconception that is growing from this thread.

Misconception? My sincerest apologies all, I thought this thread had evolved into a discussion in response to the original poster's question.
Cheers, Nigel

 

[Optegris]

I would have said it is a asset dependent on how it was registered.

For example. When I moved from being a sole trader to a LTD in April, I had to pay to transfer the ownership of my UK domains to the LTD company even though I was the owner.

The reason being that Nominet consider a domain name to be an asset to a company.

Whether they consider it to be an asset if you are a sole trader or not I don't know but likely...