Accounting for Intangible Assets: AASB 138

ACCOUNTING
2019

AASB 138
Executive Summary
The current report revolves around technology Enterprises Ltd, a listed company and engaged
in R&D. The project was successfully accomplished and the company applied for the patent.
The major segment of the study is to know how to account for the project so that the New
project R&D account can be used to accumulate the salaries of engineers linked with the
project. The report initiates with an introduction followed by the process of accounting and
the choice of the process. Further, discussion is done on AASB 138 and a response to CEO is
also presented.
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AASB 138
Contents
Executive Summary..................................................................................................... 2
Introduction............................................................................................................... 3
Accounting for the project............................................................................................. 3
The correct choice in the scenario.................................................................................... 4
The application of AASB 138 and the level to which the comparability of financial statements is
reduced.................................................................................................................... 4
Response to CEO........................................................................................................ 5
Conclusion................................................................................................................ 7
References................................................................................................................ 8
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AASB 138
Introduction
Assets can be defined as the resources owned by an organization that assists the same in
generating revenues and enhancing its financial statements. Assets can be segregated into two
categories based on its physical existence- tangible assets and intangible assets. Tangible
assets are the resources that can be seen, touched and felt such as equipments, land, plant and
machinery, etc while intangible assets are the type of assets that do not have a physical
existence that is these resources cannot be seen, touched or felt but still has a huge ability of
enhancing the functioning of an organization in multiple ways (Petty et. al, 2012). Goodwill,
trademarks, patents, intellectual property and other copyrights are examples of intangible
assets. It must be noted that intangible assets do not yield any benefits from the contractual
claims. Thus, assets hold huge significance in improving the financials of an organization and
help the same in enhancing its reputation in the industry.
Accounting for the project
If the intangible assets owned by an entity are capable enough of enhancing the profits for the
same, then only these shall be deemed as economically beneficial. The revenues generated as
a result of the intangible assets owned by an entity must be quantified in nature so that the
same can be recognized. There is also a need for intangible assets to undergo research and
development at regular intervals. It is very clearly mentioned in IAS 38, that the assets are
required to be valued at the cost of acquisition value only and therefore, this makes it
necessary for such costs that were incurred in the maintenance of intangible assets to be
added to the capital assets. Hence, the organization must refrain from using other value in the
valuation of its assets (Porter & Norton, 2014).
The methods used in evaluation processes differ from organization to organization. In order
to enhance the financial statements of an organization, the senior managers emphasize the
due focus on its assets by means of providing appropriate research and development at
regular intervals (Laux, 2014). The net worth of the intangible assets of the company was $1
million. It was noticed that the senior management of the company wanted to represent the
net worth of the intangible assets of the same to be 4 times greater than the actual value. The
accountant justified that the intangible assets of the company are measured at their historical
costs and are completely in sync with the accounting standards. As per AASB 138 and IAS
38, it is important for all the organizations to measure their intangible assets at their historical
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