Annual Report 2007
Accounting policies
1/4 forward
Total revenue
Software AG sales revenues primarily consist of revenue from granting software licenses - usually of indefinite duration, maintenance revenue, and revenue from Professional Services. Revenue from granting perpetual licenses is only recognized once a contract has been signed with the customer, any rights to return have expired, the software has been delivered in accordance with the contract, a price has been agreed or can be established, and there is sufficient probability that payment will be made.
Revenue from maintenance business is recognized proportionately over the period of service provision.
Revenue resulting from contracts for Professional Services, which are invoiced on the basis of hours performed, is recognized in the period in which the services are rendered by the SAG companies.
Pursuant to IAS 11, revenues and expenses from fixed-price service contracts are recognized in accordance with the percentage-of-completion (POC) method if the revenues can be reliably measured, there is sufficient probability that Software AG will receive the economic benefits from the transaction, and all costs incurred for the transaction and the costs to complete the service can be reliably established.
Revenues are reported net of discounts, price rebates, customer bonuses, and allowances.
Cost of sales
Cost of sales includes all production-related full costs based on normal capacity utilization. In particular, the cost of sales includes the individual unit costs that can be directly allocated to the orders as well as fixed and variable overheads. Borrowing costs are not capitalized as part of cost. No write-downs on inventories were required during the reporting period.
Research and development expenses
Research and development expenses are recognized in the income statement as they are incurred. The creation and development of software involves the use of closely linked, iterative processes between the research and development phases. As a result, expenses incurred for research cannot be strictly separated from those incurred for development. The criteria for the capitalization of development expenses defined in IAS 38.57 in conjunction with 38.53 (revised in 2004) are therefore not fulfilled. Software acquired for a consideration in connection with business combinations is capitalized at market value.
Selling expenses
Selling expenses include costs for personnel, materials, depreciation allocated to the sales cost center, and advertising costs.
