Intangible Assets Accounting and Disclosure

This assignment delves into the crucial aspects of accounting for intangible assets. It covers topics such as the capitalization of research and development costs, the recognition and measurement of acquired intangibles, and the impairment assessment process. The document emphasizes the importance of transparent disclosure regarding intangible assets in financial reporting, outlining the information companies must provide to stakeholders.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced financial accounting
Name of the student
Name of the university
Author note

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Table of Contents
Abstract......................................................................................................................................3
Introduction................................................................................................................................4
Measurement and recognition....................................................................................................4
Goodwill generated internally....................................................................................................6
Telstra Corporation Ltd..............................................................................................................6
Treatment of intangible asset by Telstra Corporation................................................................6
Impairment of intangible assets.................................................................................................7
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Abstract
AASB 138 on intangible assets focuses on the treatment of intangible assets. The report will
focus on the treatment of intangible assets and its measurement and recognition criteria as per
AASB 138. It will further focus on the treatment of intangible asset by Telstra Corporation
Ltd. as per AASB 138, all the companies frequently incur the liabilities and spend their
resources for the development, acquisition, enhancement or maintenance of the intangible
resources like technical or scientific knowledge, implementation and design of new systems
or process, market knowledge, trademarks and intellectual property. The assets that will be
recognised as intangible asset shall be treated as per AASB 138.

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Introduction
The main objective of AASB 138 on intangible assets is prescribing the treatment for
the intangible assets that are specifically not dealt in any other standard. It requires a
company to identify the intangible assets only if the criteria are met. Further, it also specifies
in what way the carrying amount of the intangible asset is measured and the requirement of
the disclosures regarding the intangible asset (Ji and Lu 2014). All the companies frequently
incur the liabilities and spend their resources for the development, acquisition, enhancement
or maintenance of the intangible resources like technical or scientific knowledge,
implementation and design of new systems or process, market knowledge, trademarks and
intellectual property. Various examples for these items are import quotas, supplier or
customer relationship, market share, marketing rights, customer loyalty, patent, computer
software and copyrights. However, as per Para 9 of AASB 138, all the assets do not qualify
under the intangible asset definition (Yao, Percy and Hu 2015). However, when the item does
not qualified to be recognized under the standard, the expenses related to acquiring the asset
or generating it internally is identified at the time when incurred. However, when the item is
acquired it will be regarded as the part of goodwill that is identified at the date of acquisition.
Measurement and recognition
The recognition of any item as intangible asset needs an organization to determine
that item satisfies the following conditions –
 It meets the criteria of recognition as per Para 21-23 of AASB 138
 It meets the intangible asset’s definition as per Para 8-17 of AASB 138
The above mentioned requirement is applicable to the cost that is initially incurred for
acquiring or generating internally the intangible asset and the amount incurred to make the

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addition or replace the asset or service the asset. Te Para 25-32 of AASB 138 deals with
application of recognition criteria for acquiring the intangible asset separately, while Para 33-
43 deals with the application to the intangible assets that are acquired under the business
combination. Further, Para 44 of the standard deals with initial measurement of the intangible
assets while Para 48-50 deals with treatment for the goodwill that is generated internally.
Moreover, Para 51-67 of the standard deals with measurement and initial recognition of the
intangible assets that is internally generated (Hu, Percy and Yao 2015).
As per Para 21 of AASB 138 the asset shall be recognized as intangible asset if and
only if –
 The asset’s cost can be reliably measured
 It is expected that the future economic value with regards to the asset will inflow to
the company.
As per Para 22 of the standard an organization shall analyse the probability of the
forecasted future economic benefits through the supportable and reasonable assumptions that
will represent the best estimation of the management with regard to the economic condition
set that may exist over the asset’s useful life. Further, Para 23 states that an organization uses
the judgement for for assessing the certainty level that is attached with the inflow of the
future economic advantages contributable to asset’s usages based on the available evidence
while making the initial recognition and gives greater weight age to the external evidence. As
per Para 24 of AASB 138 the intangible asset initially must be recognized at cost.
Notwithstanding anything to Para 24, with respect to the “Not-for-profit organization”, where
the asset acquired for no-cost or for the nominal cost, the cost is the fair value on the
acquisition date.

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Goodwill generated internally
As per Para 48 of AASB 138, the goodwill that is internally generated must not be
identified as the asset. In some of the instances, the expenses incurred for generating the
future economic advantages but do not result into the generation of intangible asset that
satisfy the recognition criteria as per the standard. Such expenses are generally described as
contributable to the goodwill that is internally generated. Further, the goodwill that is
generated internally will not be identified as asset as it is not the identifiable resource that is
the asset cannot be separated or it does not arise from the legal or contractual rights. The
variances among the carrying amount and the fair values of the identifiable net asset at any
point of time may capture the wide range of the factors that will impact the entity’s fair value
(Bond, Govendir and Wells 2016). However, the differences do not specify the intangible
asset’s cost that is controlled by the organization.
Telstra Corporation Ltd.
Telstra is the Australian media and telecommunications company that operates and
builds the telecommunication network and markets the mobile, voice, pay television, internet
access and other services and products related to entertainment (Telstra.com.au 2017).
Treatment of intangible asset by Telstra Corporation
Looking at the annual report of Telstra Corporation Ltd. for the year ended 2016, it is
recognized that the goodwill acquired under the business combination is measured at the cost.
This cost represents excess of payment towards business combination over fair value of
identifiable asset on the date of acquisition (Bond, Govendir and Wells 2016). Further, the
goodwill was not amortised, however, it was tested for the purpose of impairment on annual
basis or while the impairment indication is there. Further, the intangible assets includes the
assets that are internally generated particularly the costs related to development of IT

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incurred for build, design and testing the improved or new systems and products related to IT.
The costs related to research are spend while incurred and the external direct cost related to
consumption of services and material, costs associated with payroll for the employees and
borrowing cost directly contributable to qualifying asset shall be capitalised (Steenkamp et al.
2016). However, the intangible assets that are acquired through separate acquisition or
through business combination are recorded at the fair values on the acquisition date and are
identified separately from the goodwill (Telstra.com.au 2017).
Impairment of intangible assets
The company compares the recoverable amount and the carrying amount of CGU for
the impairment assessment through the calculation of value in use (VIU). The calculations of
VIU uses the major assumptions like the forecasts of cash flow, terminal rate of growth and
the rate of discounts (Russell 2017).
Conclusion
From the above discussion it is concluded that any organization shall disclose the
details related to the intangible assets, its measurement and recognition. The company must
disclose the useful lives of the asset that is whether the life is definite or infinite. Further, the
company shall disclose the method of amortisation used for the intangible assets that has
finite life. The company shall disclose the description, remaining amortisation period and
carrying amount of the particular intangible asset that will be material for the financial report
of the organization. Further, the organization shall state the factors that plays significant role
for determination of the fact that the asset has indefinite period of useful life.

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References
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, 56(1), pp.259-288.
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairment decisions by
Australian firms and whether this was impacted by AASB 136.
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.
Russell, M., 2014. Capitalization of intangible assets and firm performance.
Russell, M., 2017. Management incentives to recognise intangible assets. Accounting &
Finance, 57(S1), pp.211-234.
Steenkamp, N., Steenkamp, N., Steenkamp, S. and Steenkamp, S., 2016. AASB 138: catalyst
for managerial decisions reducing R&D spending?. Journal of Financial Reporting and
Accounting, 14(1), pp.116-130.
Telstra.com.au. 2017. Telstra - mobile phones, prepaid phones, broadband, internet, home
phones, business phones. [online] Available at: https://www.telstra.com.au/ [Accessed 20
Sep. 2017].

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Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and
audit fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.