Accounting for Intangible Assets under AASB 138

The provided project report focuses on the importance of complying with AASB 138, which encompasses amendments from IAS 38, for businesses operating in Australia. The report emphasizes the significance of adhering to these regulations to ensure accurate and transparent financial reporting. It also highlights the need for companies to provide detailed information in their financial statements to help investors make informed decisions.

Research Individual

EXECUTIVE SUMMARY
This report is mainly based upon Technology Enterprises Ltd. which is planning to
modify its design of charging batteries. AASB 138/ IAS 38 which are mainly related to treatment
of intangible assets are used to analyse nature of the design. It is vital for the company to fulfil
all the requirements of AASB in order to record new design in intangible assets.
Recommendation regarding complying with all the AASB standards is also provided to the
company so that it can mitigate its concerns regarding investor's interpretation of information
recorded in final accounts.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
The way in which project should be accounted in financial statement........................................1
TASK 2............................................................................................................................................3
To what extend might the rules or restrictions in AASB 138/IAS 38 reduce the comparability
of financial statements.................................................................................................................3
TASK 3............................................................................................................................................4
Response to the CEO and recommendation regarding concern about investor's interpretation. .4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
All the assets which cannot be touched by an individuals are known as intangible assets.
In Australian law a specific regulation is being formed by legal authorities which is AASB
(Australian Accounting Standards Board) 138. All the amended laws of IAS 38 which are
imposed by IASB are also covered under this implication (Bodle, Cybinski and Monem, 2016).
This report is based upon treatment of accounting figures of Technology Enterprises LTD. The
topics which are discussed under this assignment are accounting procedures of project of the
company, rules and restrictions in AASB 138/ IAS 38. Apart from this, this report also focuses
on response of CEO and mitigation of concern regarding investor's interpretation.
TASK 1
The way in which project should be accounted in financial statement
Technology Enterprises Ltd. is a listed company which has conducted a research and
development project in July month of year 2017 in order to modify the method of recharging the
batteries. All the tasks of the project were accomplished successfully in June 2018 and at that
time business entity applied for its design. The enterprise is planning to acquire economic
benefits from its new project in upcoming 10 years by modifying all the goods in its consumer
range in next 2 years. Accountants of organisation were not sure the way in which project should
be accounted so they used new research and development account to accumulate salaries of
engineers. They do not have any idea of the way in which it should be accounted in financial
statements of organisation according to AASB 138/ IAS 38 (García and Pombo, 2015).
Accounting of it will be done as following:
Income statement
Particulars Amount
Revenues XXX
Less: Cost of goods sold XXX
Gross profit XXX
Less: Indirect expenses
Cost and time spent of searching alternative 100000
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Cost of time in designing model 700000
Training expenses 200000
Add: Indirect incomes XXX
Net profit 1000000+XXX
Balance sheet
Liabilities Amount Assets Amount
Share capital XXX Fixed assets XXX
Retained earning XXX Current Assets XXX
Net profit 100000+
XXX
Intangible assets (New
Design)
300000
Current liabilities XXX
Long term liabilities XXX
XXX XXX
According to AASB 138 all the costs that are faced by an organisation while looking for
design or alternatives will be considered as indirect expenses of the company and will be
deducted from gross profits. It is the main reason why different types of costs including time
spent on searching for alternative models, designing, constructing and testing them. Training
maintenance cost is also deducted from gross profits of organisation as it is also a part of indirect
expenses. The estimated value by present value technique is $400000 but estimated fair value of
it, is $300000 which is recorded in the balance sheet because AASB states that fair value of an
intangible asset should be shows in the final accounts of the company (Gonçalves and Lopes,
2017).
While business entities prepare their financial statements then different types of issues are
faced by them. These are improper information of rules and regulations which changes with time
and modified by legal authorities according to market situations. AASB were imposed by IASB
in order to guide Australian companies to record all the financial information appropriately in the
final accounts. AASB 138 is related to treatment of intangible assets specifically. Some of the
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requirements should be met to consider an asset intangible in nature (Requirements of AASB 138,
2019). All of them are as follows:
 If an organisation is willing to treat an asset as an intangible one then it should be
distinct. On the other hand the asset should arise from sort of contract.
 If the asset can be measured in monetary terms then it is not considered as intangible one
because business entity cannot purchase it from any other place.
 The asset should not have any tangible feature which means it should not be touched by
individuals.
 Sufficient control is also required to declare an asset as intangible one. For example, if an
organisation takes all the decisions regarding uses of logo or design then it has control
over the asset which can be treated as intangible.
 If the asset is sold in future and economic benefits are received by company then it fulfils
the requirement of AASB.
Justification: All the above described requirements are fulfilled by Technology
Enterprises Ltd. for new design of charging the batteries which are used in its projects. Present
value of the design is $400000 and fair value if $300000 and if it is sold by company then
economic benefits of $100000 could be received by it. Organisation have sufficient control over
the asset and when it will be sold then potential buyer can modify the design according to their
requirements or needs (Grüber, 2014). It is the main reason why new design is treated as an
tangible assets.
TASK 2
To what extend might the rules or restrictions in AASB 138/IAS 38 reduce the comparability of
financial statements
AASB 138 stands for The Australian Accounting Standards Board which is commenced
on 15 July 2004, under 334 amendment of Corporation Act 2001. The main objective of this
standard is to dictate accounting treatment for an entity related to its intangible assets, which are
not dealt with specifically as per another Standard. Therefore, it assists a business entity for
recognising their intangible assets only in that condition, under which specified criteria are met.
It also specifies the organisations in way to measure carrying amount of such assets as well as
how to disclose the same. This law also covered amendments made by IASB in IAS 38. As per
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this law, those assets of business are considered as intangible which needs to be identifiable,
must be non-monetary and more. It includes patents, licences, franchises, software, copyrights
etc. Therefore, if these assets are not recognised by corporations then the same have to be
expensed. This may affect bottom line of business and taxable profit as well.
In this regard, it is essential for entities to concern that when they organise their finance
then they must categorise the assets, which reflect value of business. For this purpose, they can
hire legal authorities at workplace who may help in categorising the assets as tangible and
intangible. Along with this, any items which are cannot classified in these two categorise can be
put as 'goodwill', so, it is not necessary to recognise them within financial statements. Hereby, it
has been evaluated that this AABS standards has covered entire ways in which entities have to
report their finances as per compliance with specifically standards, according to Corporations
Act (Hu, Percy and Yao, 2015). By breaching these requirements, business may be prosecuted,
therefore, organisations must ensure that their corporations are compliant with such give
financial reporting obligations. In context with financial statement, this standard does not apply
to:
 Intangible assets which are held by an organisation for sale within an ordinary course of
business, as per AASB 111 Construction Contracts and AASB 111 Inventories
 This standard is not applicable for deferred tax assets according to AASB 112 Income
Taxes
 Leases which are included as scope of AASB 117 Leases
 Assets which are arising from worker benefits as mentioned in AASB 119 Employee
Benefits
 Financial assets as described in AASB 132.
 Goodwill acquired in a business combination according to AASB 3 Business
Combinations
It is essential for organisation to apply AASB 138 Standard with their annual reporting
periods which are begun before 1 January 2009 and after 1 January 2005. While in context with
not-for-profit entities, this law can apply to annual reporting periods which begins on or after 1
January 2014. This would incorporates the reliable and relevant amendments that are contained
in other Standards of AASB made on and after 18 December 2012. Other than this, in context
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with profit entities who are complying and amending with AASB 138, are also simultaneously
comes under compliance with IAS 38 also as amended (Ji and Lu, 2014).
TASK 3
Response to the CEO and recommendation regarding concern about investor's interpretation
According to CEO of organisation can show the asset at the value of $400000 in balance
sheet and add $300000 to the profits. AASB 138 states that only fair value of an intangible asset
should be recorded in the books of accounting because it can help to calculate economic benefits
which will be received by organisation in future. It is very important for organisations to measure
all the assets initially after recognising their nature according to requirements of AASB 138/ IAS
38. This law of IASB requires that business entities should disclose detained information of each
class of its intangible asset which helps to distinguish between these and other assets. If company
is not able to provide detailed information regarding an asset then it will be expensed for
organisation (AASB 138, 2019). It can leave negative impact upon profitability and taxation. It is
being suggested to the CEO that amount of $300000 for the design which is its fair value should
be recorded in balance sheet under intangible asset head. The way in which business entities such
as Technology Enterprises Ltd. classify their assets, affect value of whole business. Including
appropriate data in financial statements assures that value of the company will be increased in
future.
Efficient market hypothesis: It is an investment theory which helps to depict
information regarding share prices of an organisation. It helps investors to determine possible
returns which could be acquired by them on their money which will be invested by them in a
company. It suggests that investors can't generate returns above average of the market on
continual basis.
This theory can guide investors of Technology Enterprises Ltd. to analyse the situation in
which they will not be able to acquire higher returns on their investments on consistent basis.
With the help of it they can withdraw their money in order to ignore situation of losses which
may take place in future (Malone, Tarca and Wee, 2016).
Recommendation: CEO of Technology Enterprises Ltd. is worry about the way in which
organisation can mitigate its concerns regarding investor's interpretation of data accounted in
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financial statements of company. Following recommendations are provided to CEO in order to
minimise it:
 Efficient market hypothesis can be formulated by the company which can help it to
provide appropriate information regarding share price of the company and the level when
they will not be able to acquire consistent returns.
 It is vital for Technology Enterprises Ltd. to comply with all the essential requirements of
AASB 138 which can help it to meet legal implications.
 Detailed information in the financial statements can help investors to evaluate actual
position of company which can guide them to formulate strategic decisions regarding
making investment or withdrawing their money from organisation (Pacter, 2014).
CONCLUSION
From the above project report it has been concluded that various types of rules and
regulations are imposed by legal authorities which are required to be complied by organisations
in order to operate business in appropriate manner. One of them is AASB 138 which also covers
amendments made by IASB in IAS 38. It is focused with treatment of intangible assets which are
hold by companies. It guides them to fulfil requirements which are required to account an asset
as an intangible one. If enterprise is not able to adhere with them then it is not allowed to record
a asset under intangible asset head.
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REFERENCES
Books and Journals:
Bodle, K. A., Cybinski, P. J. and Monem, R., 2016. Effect of IFRS adoption on financial
reporting quality: Evidence from bankruptcy prediction. Accounting Research Journal.
29(3). pp.292-312.
García, E. R. and Pombo, L. C., 2015. Valuación de Activos Intangibles de Propiedad
Intelectual: Fundamentos económicos, jurídicos, financieros y contables. U. Externado
de Colombia.
Gonçalves, R. and Lopes, P. T., 2017. Accounting for Biological Assets. Routledge.
Grüber, S., 2014. Intangible values in financial accounting and reporting: an analysis from the
perspective of financial analysts. Springer.
Hu, F., Percy, M. and Yao, D., 2015. Asset revaluations and earnings management: Evidence
from Australian companies. Corporate Ownership and Control. 13(1). pp.930-939.
Ji, X. D. and Lu, W., 2014. The value relevance and reliability of intangible assets: Evidence
from Australia before and after adopting IFRS. Asian Review of Accounting. 22(3).
pp.182-216.
Malone, L., Tarca, A. and Wee, M., 2016. IFRS non‐GAAP earnings disclosures and fair value
measurement. Accounting & Finance. 56(1). pp.59-97.
Pacter, P., 2014. IFRS as global standards: A pocket guide. London: IFRS Foundation.
Online
AASB 138. 2019. [Online]. Available through:
<https://legalvision.com.au/aasb-138-intangible-assets-summary-for-businesses/>
Requirements of AASB 138. 2019. [Online]. Available through:
<https://lawpath.com.au/blog/aasb-138-intangible-assets>
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