Allocation of support/maintenance costs from purchase of Cognos… IBM doesn’t haven on official statement on the break out of support as a percentage of the purchase price. In fact, IBM typically will respond that the first year of support is included in the purchase price.
This response does not help when the client is trying to apply the rules of accounting and needs to break out the cost. So let’s take a look at the costs. When you purchase IBM Cognos software, the purchase price includes one year of IBM Cognos support and the second year is 20% of the listed price of the software. If you work with Lodestar Solutions for your support renewal, we can help negotiate your support and get you certain discounts; however the list cost of the second year support is 20% of the listed price. So, let’s say we purchased $100,000 of software, year two support would be $20,000. Therefore, if we subtract $20,000 from the $100,000 for year one, we see the software cost is $80,000. Now divide the $20,000 in support cost by the $80,000 of software. As a result, we realize first year support is closer to 25% of the license portion of the purchase. Thus, you can determine if you believe the support for help desk, website knowledge base updates, etc. in year one is 25% and the subscription or license is 75%.
Note this is not to be deemed legal or professional accounting advice, but for a reference point. Talk to your tax professions to determine how you will account for the purchase.