Is a domain name an asset or a service
Discussion
Have been watching two accountants argue !
Context is a company that owns a few domain names is being wound up later this year.
One view is a domain name is a service, you pay a licence for a year which expires so value is just the licence fee. Pennies really.
Other view is no, they can be sold and traded so are assets which could have substantial value and so should be treated like tangible equipment - but if you go that route, how do you value them? And if they are an asset where are they when it's all done on a US based website.
Anyone any experience of this and have a view ?
Context is a company that owns a few domain names is being wound up later this year.
One view is a domain name is a service, you pay a licence for a year which expires so value is just the licence fee. Pennies really.
Other view is no, they can be sold and traded so are assets which could have substantial value and so should be treated like tangible equipment - but if you go that route, how do you value them? And if they are an asset where are they when it's all done on a US based website.
Anyone any experience of this and have a view ?
Given that a name can be worth millions & bought & sold I'd say they are definately an asset. I've known them to be owned by someone & licenced to his company for their use bu ti fthe company went down the domian remained his.
Valuing them is more difficult - like most things they are only worth what someone wants to pay & that depends on whether it's a real word & how many letters there are in it. A three-letter domain could be worth quite a bit.
Valuing them is more difficult - like most things they are only worth what someone wants to pay & that depends on whether it's a real word & how many letters there are in it. A three-letter domain could be worth quite a bit.
Context and cost matter.
If something cost £10 to buy, it would be safely written off - even if it was an asset.
However, if it cost a material amount, then you would need to capitalise it as an Intangible Fixed Asset.
"Material value" depends on the size of the organisation and its capitalisation threshold.
There may be some advantage to "capitalising" the expenditure because there might be good Capital Allowances available or even "Research and Development Allowances" - which can be very generous.
If something cost £10 to buy, it would be safely written off - even if it was an asset.
However, if it cost a material amount, then you would need to capitalise it as an Intangible Fixed Asset.
"Material value" depends on the size of the organisation and its capitalisation threshold.
There may be some advantage to "capitalising" the expenditure because there might be good Capital Allowances available or even "Research and Development Allowances" - which can be very generous.
I’d definitely class it as an IP-style asset if it was originally acquired from another party for more than a nominal amount or if it could be sold now for more than a nominal amount.
I guess I’d only class it as a service if terminating the service (i.e. letting the registration lapse) would not negatively impact the company in any way.
I guess I’d only class it as a service if terminating the service (i.e. letting the registration lapse) would not negatively impact the company in any way.
My view, as an accountant, is that it would depend on the company's right to and intention of renewing the domain.
If the company had the right to renew and intended to renew then it would be an intangiable asset. The asset may have a high or low value. If it were very low it may be immaterial.
Now, the interesting bit is where the company purchases the domain for the original nominal amount and during its use the value of the domain increases. Eg moonpig.com . You would then carry an asset value greater than the purchase price necessitating a revaluation reserve
If the company had the right to renew and intended to renew then it would be an intangiable asset. The asset may have a high or low value. If it were very low it may be immaterial.
Now, the interesting bit is where the company purchases the domain for the original nominal amount and during its use the value of the domain increases. Eg moonpig.com . You would then carry an asset value greater than the purchase price necessitating a revaluation reserve
Edited by CaptainSlow on Friday 21st May 21:20
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