Laptops and servers: expense or fixed asset?
How a software company decides whether laptops, servers and test devices are expenses or fixed assets, and how depreciation then posts each month.
By Achekam · · 5 min read · For Software (SaaS) businesses in South Africa, Nigeria, Kenya
A software company's most valuable asset is its code, which rarely appears on its balance sheet. What does appear, or should, is the equipment the code is written and run on: developers' laptops, monitors, a rack server in a cupboard, a shelf of phones and tablets for testing, the office network gear.
Founders often put all of it straight through the income statement. It feels simpler, and it makes the month look tight, which some like when cash is short. But it misstates both the month's costs and what the company owns, and an accountant or investor will ask why a company with a whole engineering team has no equipment on its books. This article sets out a simple policy and then follows a laptop from purchase to disposal in Achekam.
Expense or asset: setting a simple written policy
An item belongs on the balance sheet as a fixed asset when the company controls it, expects to use it for more than one year, and its cost is worth tracking separately. A laptop issued to an engineer for the next few years passes all three tests. A replacement charger does not.
The third test is a judgement, and the usual way to settle it is a written capitalisation policy agreed with your accountant. Keep it to one page:
- A threshold. Items below an amount your accountant agrees go to expenses, whatever they are.
- Classes of asset. For example computer equipment, servers and network gear, furniture, and test devices.
- Useful lives. How many years each class is expected to last in your business, not in a textbook.
- Method. Straight line or reducing balance for each class.
- Groups. Whether a batch of identical monitors bought together is one asset or several.
Write the policy once and apply it every time. Consistency is what makes the numbers trustworthy. The IFRS rules behind these choices, from initial cost to depreciation, are explained in ACCA's article on measuring and depreciating property, plant and equipment.
Recording the purchase bill
Most equipment arrives with a supplier invoice. In Achekam, a business records supplier bills line by line with VAT, picking the supplier from its one supplier list, which checks for duplicates by name or VAT number. A bill without a purchase order waits for approval before it posts, and once approved it can be paid in full or in parts from a chosen bank account.
What matters for a fixed asset is where the cost ends up. It should land in an equipment account on the balance sheet, not in an expenses account. After the first bill, open the trial balance and check the equipment account moved by the cost you expected. If it went to expenses, correct it with a journal now rather than at year end.
Adding the asset to the register at cost
The fixed-asset register is where each item is tracked one by one. A business adds an asset at its cost, then lets the register depreciate it month by month. Keep enough detail to find each item later, such as the serial number, the person it was issued to and the purchase date, in the asset's name or in a list kept beside the register. When an engineer leaves, those records tell you which laptop they should hand back.
Keep the register and the ledger in step. At each month end, the total cost in the register for a class should agree with the balance in that class's account. If they differ, someone has bought equipment that was never registered, or registered something that went to expenses.
Straight line or reducing balance, journalled monthly
The register depreciates assets monthly, by straight line or reducing balance, with a journal each month. Straight line spreads the cost evenly over the useful life, so a laptop carries the same charge every month until it is fully written down. Reducing balance takes a fixed proportion of what is left, so the charge is larger early and smaller later, which some companies feel suits technology that loses value fast.
Whichever you choose, the monthly journal means the income statement in your management accounts carries a depreciation charge every month rather than one large figure at year end. That gives a truer monthly cost of running the engineering team.
Months can be closed in Achekam, and a closed month refuses postings from every source. Run the register's depreciation before you close the month, not after.
Disposing of old equipment, with the profit or loss posted
Laptops get stolen, servers get retired, and test phones get sold to staff. When an item leaves, dispose of it in the register. Achekam posts the profit or loss on disposal: the difference between what you received, if anything, and the item's remaining book value.
A practical example in words: partway through its useful life, an engineer's laptop is sold to the engineer at an agreed price. You record the disposal in the register, and the gap between that price and the laptop's remaining book value posts as a profit or a loss. Nobody needs to work out the journal by hand.
If a posted journal is wrong, it is corrected only by a reversal, so the trail of what happened stays visible.
Tax wear-and-tear handled outside the register
The register works out accounting depreciation. It does not work out tax wear-and-tear or capital allowances, which follow each country's own rules and rates and often differ from the accounting lives you chose. Your accountant computes those separately for the tax return in South Africa, Nigeria or Kenya.
For a parallel example with vehicles rather than laptops, see depreciating a fleet. And because depreciation is not cash, remember to leave it out when you work out burn and runway.
A first step
List every piece of equipment the company currently uses, with its purchase date and cost, and agree the one-page policy with your accountant. Then add the items that pass the policy to the register, and from next month every new laptop follows the same route.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
