Villanueva, Rosedeliza v.

May 3, 2021
3BSIS-1

ACTIVITY No. 3 The Cost of Investment

1.Are IT applications an asset or an expense?

Ans. Another important thing to consider is how the application is appropriated within the
organization. If it is an application that is amortized over a period of years, like an ERP (Enterprise
Resource Planning) system, then this would be considered an asset from an accounting
standpoint. An application is an expense, or becomes an expense, when it has a much smaller
impact and only short-term costs, such as operating systems and basic word processing
applications. Older applications can also become an expense once the system has been fully
paid for via the amortization period. At that point, the cost to maintain them will be the only
charge for the system, and this can be an expense.

2.What is the main purpose of allocating IT costs to user departments?

Ans. The main purpose of allocating IT costs to user departments is to provide a breakdown of
the rate at which each user department used IT. This makes it easier for the IT department to
bill the user departments for the services that they used, and not arbitrarily billing all of the
departments the same amount. It also makes it possible to create a separate budget for IT
within their specific department, since the user department is given a clear overview of what
they are spending on IT. This also helps to keep a level playing field since some departments
will use more IT resources than others.

3.What is an appropriate percentage of the IT budget to spend on maintenance?

Ans. IT applications are both assets and expenses. An IT application is an asset to a company
because it helps the company achieve its goals. This is similar to Barton’s situation. He wants to
improve the company, so he is going to have to manage assets, or in this case, his employees. He
may need to even add on more assets. This would create an expense. Also, if an asset is not
helping him and is becoming a burden at the cost of money, it is also considered an expense. In
that case, he would remove the IT application.

4.As a percentage of sales, how much should a company spend on IT?

Ans. It’s important to keep in mind that the companies that invest the most in IT aren’t
necessarily the best performers. On average, the most successful small and medium
companies are more frugal when it comes to IT spending (as long as they do it judiciously).