Impairment of Intangible Assets: Accounting Treatment

This assignment focuses on the recognition of impairment losses on intangible assets in financial statements. It delves into the concepts of recoverable value and fair value, emphasizing how these are used to determine if an impairment loss exists. The assignment also highlights the importance of disclosing information about future economic benefits expected from intangible assets.

STUDENT NAME:
STUDENT ID:
SUBJECT CODE:
ASSIGNMENT TITLE: ACCOUNTING STANDARD FOR
INTANGIBLE ASSETS
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Executive summary
Intangible assets of an organization can be definite or indefinite in nature which should have to
be evaluated effectively and efficiently as per the accounting standard of AASB 138 and 136.
Evaluation of intangible assets through recognition, acquisition and amortization should have to
be interpreted through which financial statement can be reviewed for a particular financial year
appropriately. In this report Australia-based banking organization Westpac Banking Group's
intangible assets from the annual report and financial statement are evaluated through
impairment, amortization and identifiability criteria of AASB.
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Table of content
Overview of the company................................................................................................................4
1) Composition of the intangible assets in the company.................................................................4
2) Evaluation of the identifiability, recognition, and acquisition of intangible assets as per the
financial statements of the company................................................................................................5
3) Evaluating measurement and determination and amortization of intangible assets in the
company...........................................................................................................................................7
4) Evaluating the impairment of intangible assets as per the financial statement measurement.....8
5) Discussing sufficient information provided in the company's financial statement as per AASB
138 and AASB 136..........................................................................................................................9
Reference list.................................................................................................................................10
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Overview of the company
In this reported statement, the selected company is Westpac Banking Group of Australia which is
listed on the Australian Securities Exchange (ASX). The organization is a public limited banking
company with a provision of financial and banking services in the World Wide in an appropriate
manner. Some branches in all over the World are around 1429 and products and services of this
banking organization rare traded in ASX, NYSE (New York Stock Exchange) and NZX (New
Zealand Stock Exchange) (Ding et al. 2016, p.25). Westpac banking group was founded on 1982
with the headquarters in Westpac in Sydney with around 3850 locations. Some workers are
around 32620 as per the last annual report and continued to increase year to year. Products and
services offered by this organization are mainly corporate and investment banking, wealth
management, insurance and financial services, mortgages and credit cards to the customers.
According to the financial year 2015, the company's revenue is around A$ 21.642 with total
assets was around A $812.156 billion. Therefore it can be concluded that the company has
served Worldwide and can meet the requirements of the customers in an efficient manner and
revenue and total assets with net income of the organization are continued to increase (Chan et
al. 2016, p.250). In this regard, intangible assets of this company should have to be reviewed and
evaluated to understand recognition and amortization aspects of intangible assets.
1) Composition of the intangible assets in the company
Intangible assets: In general terms it has been considered by the accountants and accounting
standard boards that intangible assets are not physical in nature but considered as an assets such
as trademarks, copyrights, brand recognition goodwill and patents which are to be included in the
financial statements of balance sheet of a company as per accounting rules and standards
effectively and appropriately (Castilla-Polo and Gallardo-Vázquez, 2016, p.329).
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Intangible assets as per comprehensive income of Westpac
From the above statement of quarterly net profit, the intangible assets are amortized with the
amount of $ 76 million. Again as per the financial statement of Westpac Banking group, the total
intangible assets was around $ 8128000 in 2015, and in 2016 it was increased to $ 8816.
2) Evaluation of the identifiability, recognition, and acquisition of intangible
assets as per the financial statements of the company
Evaluation of recognition and acquisition of intangible assets as per the balance sheet of 2015 of
Westpac Banking Group, Australian Accounting Standards Board, have given rules and
regulation for the accounting of intangible assets effectively in an appropriate manner. As per
AASB 138, identifiability, recognition, and acquisition of intangible assets should have to be
interpreted about the financial statement of Westpac group.
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Balance sheet of Westpac Banking Group
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Identifiability of Intangible assets as per AASB 138: As per AASB 138, identifiability of
intangible assets can be evaluated if is considered by the management team of the organization
that it can be separated, transferable, exchangeable, sold and licensed effectively and efficiently.
In other case intangible assets can be identified if the assets can fulfill the criteria for legal rights
and it is contractual in nature, again it should be considered that whether the assets can be
separated from other obligations and rights of assets (Cheng and Finney, 2016, p.40). From the
above financial statement of 2015 of Westpac, it can be said that the organization's intangible
assets has fulfilled all such identifiability criteria and amounted to $ 8128000.
Recognition of intangible assets as per AASB 138: To consider as intangible assets, an asset
should have to fulfill recognition criteria appropriately as described under the standards of
AASB respectively. As Westpac group’s intangible assets have fulfilled such recognition
criteria, the number of intangible assets have increased effectively that can lead the company
towards the creation of brand loyalty as well as higher revenue and profitability.
As per the recognition criteria, it has been described in AASB that the cost of fixed assets should
have to be measured in a reliable and efficient manner with the future economic benefit that can
be attributable to such assets respectively (Carvalho et al. 2016, p.16). Therefore it can be
considered that the assets should have to earn a future economic benefit that can lead to meet the
recognition criteria as intangible assets and these criteria are fulfilled by the Westpac Banking
Group.
Acquisition of intangible assets as per AASB 138: As per AASB 138, it has been described
that if the assets are indefinite in nature, the assets should not be amortized. In this regard, assets
should have to be reviewed in each financial year for reporting purpose whether the criteria for
intangible assets are met or not. Westpac bank’s intangible assets have met all these criteria to
identify as Intangible assets (Dickinson et al. 2016, p.430).
3) Evaluating measurement and determination and amortization of intangible
assets in the company
Measurement of Intangible Assets as per AASB 138: As specified in the accounting standards
of AASB 138, initial measurement for the intangible assets should have to follow certain criteria
tat about the acquisition cost and evaluation model criteria should have to be evaluated. An
organization at the time of determining intangible assets must follow cost or revaluation model.
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As per cost model, from the value of intangible assets accumulated amortization and impairment
loss should be subtracted. Under the model of revaluation of intangible assets, such assets should
be valued at their revalued price to determine inactive market effectively and efficiently
(Steenkamp et al. 2016, p.134).
In this context, the finance manager of Westpac Banking Group should have to consider all such
criteria and rules for intangible assets to measure after acquisition appropriately.
Amortisation of intangible assets as per AASB 138: To review financial performance and
financial position of an organization and to view strengths and weaknesses of that company for
particular financial years, the preparation of financial statements should have to be evaluated and
interpreted in an efficient manner. In this regard as per the accounting standards boards,
valuation of intangible assets and criteria should have to be understood by business analysts and
accountant to appropriately review financial statements. Australia-based banking organization
Westpac Banking Group's management team must evaluate financial statement for amortization
of intangible assets as per AASB (Carvalho et al. 2016, p.14). In this context, if an intangible
asset has the useful life which is considered as finite in nature should be amortized at its cost less
scrap value. If the assets have to gain any future economic benefits, then finance manager should
have to adopt amortization method as Westpac have implemented amortization method for
intangible assets.
4) Evaluating the impairment of intangible assets as per the financial
statement measurement
Testing of Impairment of Intangible Assets: In this regard evaluation of the impairment of
intangible assets as per the financial statement as prescribed by AASB 138 and AASB 136, it
should have been considered that the assets are carried at recoverable value but not more than
that value respectively for which the impairment test is required effectively and efficiently by the
finance manager and accountant. Westpac group should have to require for impairment test for
its intangible assets to review of financial statement (Banker et al. 2016, p.231). The accountant
must recognize the impairment of the asset as impairment loss which should be debited to
account for impairment loss and to be credited to intangible assets account as per accounting
standards.
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At the time of preparing the financial income statement and balance sheet, such steps were
followed by an accountant for which accurate accounting for intangible assets was done and
reflected in the balance sheet (Healy, 2016, p.530).
Different indications of impairment of intangible assets such as if the market value of assets
decreases, maximization of the rate of interest, the value of net assets is more than the capitalized
value are the external sources of impairment. Internal sources of impairment such as the worst
performance of assets, carrying some such assets are more than its fair value, or physical damage
of assets are the criteria for impairment loss of assets as discussed in AASB 138 (Small et al.
2016, p.16).
5) Discussing sufficient information provided in the company's financial
statement as per AASB 138 and AASB 136
Disclosure of Intangible assets as per AASB 136 and 138: In this regard an organisation
should have to consider the regulations as per AASB 138 and 136 regarding disclosure of
intangible assets, that the finance manager and accountant should have to evaluate that whether
the criteria for disclosure of intangible assets are fulfilled or not in an appropriate manner.
Disclosure of intangible assets should have three main parts such as disclosure for the class of
assets, disclosure for the reportable segments of the company and other disclosures. Westpac
banking group also revealed these criteria at the time of accounting for intangible assets and
impairment of loss effectively (Bond et al. 2016, p.155). Disclosure should have to be
represented with detailed information regarding recognition of impairment loss in profit and loss
account or valuation of intangible assets in the Balance Sheet, recoverable value or fair value of
intangible assets and whether future economic benefits are gained or not from those intangible
assets should have to be represented in disclosure.
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Reference list
Banker, R.D., Basu, S. and Bryzgalov, D., 2016. Implications of Impairment Decisions and
Assets' Cash-Flow Horizons for Conservatism Research. The Accounting Review.
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian
firms and whether they were impacted by AASB 136. Accounting & Finance.
Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. The Recognition of Goodwill and Other
Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting
Review, 26(1), pp.4-20.
Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. The Recognition of Goodwill and Other
Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting
Review, 26(1), pp.4-20.
Castilla-Polo, F. and Gallardo-Vázquez, D., 2016. The main topics of research on disclosures of
intangible assets: a critical review. Accounting, Auditing & Accountability Journal, 29(2),
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Chan, M., Kemp, S. and Finsterwalder, J., 2016. The concept of near money in loyalty
programmes. Journal of Retailing and Consumer Services, 31, pp.246-255.
Cheng, K. and Finney, S., 2016. The Tangle of Intangible Assets and Business Combinations.
The CPA Journal, 86(1), p.40.
Dickinson, V., Wangerin, D.D. and Wild, J.J., 2016. Accounting Rules and Post-Acquisition
Profitability in Business Combinations. Accounting Horizons, 30(4), pp.427-447.
Ding, Y., Ding, Y., Keh, H.T. and Keh, H.T., 2016. A re-examination of service standardization
versus customization from the consumer’s perspective. Journal of Services Marketing, 30(1),
pp.16-28.
Healy, P.M., 2016. Reflections on M&A accounting from AOL’s acquisition of Time Warner.
Accounting and Business Research, 46(5), pp.528-541.
Small, R., Yaseen, Y. and Schmidt, L., 2016. Amortisation of intangible assets: accounting
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Steenkamp, N., Steenkamp, N., Steenkamp, S. and Steenkamp, S., 2016. AASB 138: catalyst for
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14(1), pp.116-130.
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Tsai, C.F., Lu, Y.H., Hung, Y.C. and Yen, D.C., 2016. Intangible assets evaluation: The machine
learning perspective. Neurocomputing, 175, pp.110-120.
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