Financial Accounting

This study outlines the AASB standards for recognition criteria of intangible assets, including goodwill and restructuring provisions. It discusses the accounting treatment of brands, the recognition of goodwill, and the implications of goodwill write-offs. The study also explores the provisions for restructuring costs under AASB 137.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Authors Note
Course ID

1FINANCIAL ACCOUNTING
Executive Summary:
The present study is based on outlining the standards of AASB in accordance with the
recognition criteria for the intangible assets. The study would explain the situation when the
goodwill is recognized and they are subsequently written off. Additional emphasis will be
paid on significant write-off of goodwill based on the flawed investment strategy. A
restructuring provision will also be accompanied in this report with regard to the AASB 137.

2FINANCIAL ACCOUNTING
Table of Contents
Answer to question 1:.................................................................................................................4
Answer to question 2:.................................................................................................................5
Answer A:..............................................................................................................................5
Answer B:...............................................................................................................................6
Answer to question 3:.................................................................................................................6
Answer A:..............................................................................................................................6
Answer B:...............................................................................................................................7
Answer C:...............................................................................................................................7
References:.................................................................................................................................8

3FINANCIAL ACCOUNTING
Answer to question 1:
Accounting for brands under AASB 138 subsequent expenditure on brands whether it
is produced internally or acquired externally must always be recorded under the profit and
loss as incurred. The primary reason for recognizing the brands under profit and loss account
because such kind of expenses cannot be distinguished from the expenses to progress the
business as a whole (Schroeder, Clark and Cathey 2019). An intangible asset will only be
identified if it is very much likely that that the anticipated future economic advantage which
is attributable to the asset would eventually flow into the company and the assets cost can be
measured reliably.
The acquirer recognizes brand as the single set of asset group under the
complementary intangible assets if the fair value of the complementary assets is unable to
measure reliably (Beatty and Liao 2014). If the fair value of the complementary assets can be
measured reliably then the acquirer might identify the brands as the single asset given that the
individual assets have identical useful lives.
Difficulties for the standard setters in allowing the recognition of all brands is that the
acquired brands should be recognized at cost. If it is acquired as the part of business
combination, then it should satisfy the recognition criteria of IFRS 3 which states that no
criteria for recognition should be implemented. If the assets satisfy the definition of the
intangible assets, then the asset should be recorded as the separate asset (Henderson et al.
2015). When the company separately acquires the intangible assets, the effect of profitability
is seen in the measurement of the asset. It becomes at times to difficult determine whether the
internally produced intangible assets such as brands qualifies for the recognition due to the
difficulty in recognizing whether and when there is a recognizable asset which would

4FINANCIAL ACCOUNTING
produce anticipated future financial benefit. The standard setters also face the problems in
determining assets cost reliably.
To determine the brand value cost base brand valuation can be adopted by the firms.
The brand can be valued by using the sum of individual cost of brand assets and liabilities.
The items that are included in assessing cost is historical cost of advertisement, promotional
outlays, campaign creation cost, licensing and registration cost.
Answer to question 2:
Answer A:
In accounting goodwill is regarded as the intangible assets that is related with the
combination of business. Goodwill is recognized when the company acquires another
company and the price paid for purchase is much higher than the combination of fair value of
identifiable tangible and intangible assets purchased (Schaltegger and Burritt 2017).
Goodwill is generally identified based on the outcome of the business combination and
constitutes the differences amongst the overall purchase consideration and the total amount of
fair values relating to the assets acquired. It includes the recognition of intangible assets and
liabilities that are assumed.
As per the IAS 136 goodwill is generally impaired or written off based on the level of
cash generating unit. The cash producing unit is commonly presumed as the subsidiary. In
such a manner, when performing the impairment review, the carrying value forms the value
of net assets and the goodwill of “subsidiary” is compared with recoverable value of
subsidiary (Harrison et al., 2014). At the time of assigning the impairment loss to a specific
assets inside the cash producing unit, unless there are asset which is exactly impaired is
goodwill which is initially written off, while the rest of the balance is additionally assigned
on the basis of the pro rata. The goodwill which originates following the acquisition of the

5FINANCIAL ACCOUNTING
subsidiary is generally subjected to the yearly impairment evaluation. This helps in assuring
that goodwill is not inflated in the financial statement of the group.
Answer B:
When a goodwill is written off accordingly it is treated as non-event or a simple
accounting routine. However, acquisition of corporate firms with overpriced value of shares,
in several circumstances result in goodwill write-offs. This ultimately exacerbate the post-
acquisition returns negatively further than the overvaluing alteration. The managerial
incentives that effects the goodwill write-off is because the impairment goodwill is associated
to the debt contract characteristics, manager bonuses and regulations associated to exchange
delisting (Phillips, Libby and Libby 2015). As a result, goodwill that are written-off
accordingly are regarded as vital business event gesturing as a “flawed investment strategy”.
The manager’s incentives of acquiring the overvalued firms whether to simply exploit the
overvaluing for the profits of the investors or just modifying and extending the overvaluation
by upholding the growth.
Answer to question 3:
Answer A:
As per the “AASB 137” when restructuring satisfies the definition of discontinued
operations, added disclosure might be needed by AASB the non-current assets are held for
sale and discontinued operations (Hoyle, Schaefer and Doupnik 2015). A provision relating
to restructuring cost is identified when the over-all criteria for recognition criteria stated
under “paragraph 14 of AASB” is satisfied. Common circumstances, such as restructuring
by sale of the operation happens when the company is committed to sales or there is a
binding agreement for sale.

6FINANCIAL ACCOUNTING
Answer B:
No, as under both the “AASB 137/IAS 37” and under the “AASB 3/IFRS 3” the
acquired is not allowed to recognise the provision if it has not been recognized earlier as the
liability of the “acquiree”.
Answer C:
Under this situation, even though the closure of the facility has only originated due to
the proposed acquisition, irrespective of whether the current obligation is existent, it needs to
be taken into account in agreement with the present requirements for internal restructuring
under the “AASB 137/IAS 37” in contrast to the restructuring identified as the part of
acquisition (Kimmel et al. 2016). The primary reason is that, “AASB/IFRS 3” requirement
associated to the provision of restructuring identified as the part of acquisition, is only related
to assets and liabilities of the acquirer. A restructuring provision could not be raised in the
books of “acquiree” and it is also not permitted to be taken into consideration as the portion
of restructuring cost identified as the part of acquisition.

7FINANCIAL ACCOUNTING
References:
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Harrison Jr, W.T., Horngren, C.T. and Thomas, C.W., 2014. Financial accounting. Pearson
Education.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Kimmel, P.D., Weygandt, J.J., Kieso, D.E. and Trenholm, B., 2016. Financial Accounting.
Wiley Custom Learning Solutions.
Phillips, F., Libby, R. and Libby, P., 2015. Fundamentals of Financial Accounting. McGraw-
Hill Education.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory and
analysis: text and cases. John Wiley & Sons.