Financial Accounting Process for ChiHerbals Ltd

This assessment analyzes the provisions of AASB 138 so as to identify the intangible assets of the business and also discuss the various treatments for the same for Chiherbals ltd.

Running head: FINANCIAL ACCOUNTING PROCESS
Financial Accounting Process
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Scenario 1 Financing Company Operations....................................................................................2
Scenario 2 Property, plant & equipment..........................................................................................4
Scenario 3 Lease..............................................................................................................................6
Answer to Requirement a............................................................................................................6
Answer to Requirement b............................................................................................................7
Scenario 4 Intangible Assets............................................................................................................7
Introduction..................................................................................................................................7
Discussion....................................................................................................................................8
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................10

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Scenario 1 Financing Company Operations

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Scenario 2 Property, plant & equipment

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Scenario 3 Lease
Answer to Requirement a

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Answer to Requirement b
Scenario 4 Intangible Assets
Introduction
The assessment is about the application of AASB 138 which is on intangible assets of a
business. This assessment will be analyzing the provisions of AASB 138 so as to identify the

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intangible assets of the business and also discuss the various treatments for the same for
Chiherbals ltd. The business of Chiherbals is engaged in the process of providing online sales
services of products. In order to further improve the sales of the business, the management of the
company has developed a holographic images technology which can project images of the
product to the customers engaged in online sales transactions. As per the case study which is
provided in the assessment, the management of the company cannot implement the technology
for some errors and is still at its testing stage. In order to treat the development expenditure
which is undertaken by the business, the provisions of AASB 138 is to be applied and analyzed.
Discussion
The technology which the management of the business of ChiHerbals ltd wants to
implement is developed by the business and such can be treated as development as per the
concepts which are treated in AASB 138. As per the provisions, Development can be defined as
the finds of research or plan for production for a new or sustainable practice or improved
materials before the start of commercial production or use (Chen and Chang 2013. However, in
order to understand and identify intangible assets, the identification criteria for the same is to be
understood as per the provisions of AASB 138 (Yao, Percy and Hu 2015). An asset is considered
to be an intangible asset of the business when the economic benefits which is associated with the
use of the asset can be identified and is probable and the costs which is associated with the asset
is accurately measured. Another criteria for identification of intangible asset as per the provisions
of AASB 138 states that the asset should be separate from the entity which implies that the asset
must be capable of being sold or rented. Another criteria which can be followed is that the asset
should arise from contractual liability and has a legal presence. Any of the two criteria if
satisfied the asset can be considered to be intangible in nature. The management of the company

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need to treat the intangible assets as per the provisions of the standard AASB 138. The provision
of AASB 138 specifically clarifies that the management needs to follow Selective Capitalization
Method for identifying the intangible assets part and expenses part of the developmental
expenditure which is undertaken by the management (Grüber 2015). As per this approach a part
of the expenditure is considered to be intangible assets or capitalized and another part of the
expenditure which is understand by the management is considered to be expenses of the business
and recognized in the financial statements of the business. The software expenses which is
undertaken by ChiHerbals ltd will be capitalized or considered to be intangible assets of the
business as per the provisions of AASB 138. The consultant’s expenses which is undertaken by
the business for the development of software is to be considered as expenses for the company
and the same is to be recognized in the annual report of the company. The management of the
company also needs to consider the development expenditure which is undertaken by the
business is to be considered with respect to the provisions of AASB 138. The provisions of
AASB 138 also states the disclosure requirements of the business which states that expenses
should be recorded in the financial statements of the company effectively.
Conclusion
Thus, from the above discussions it is clear that the provisions of AASB 138 should be
applied to the case of ChiHerbals ltd in order to identify the treatment which is to be undertaken
by the management of the business. The case study which is provided in the assessment shows
that the management has undertaken a development expenditure for which a part of the expenses
is to be capitalized and another part of the expenses is to treated as general expense of the
business and disclosed in the financial statements of the company.

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Reference
Chen, Y.S. and Chang, C.H., 2013. Enhance environmental commitments and green intangible
assets toward green competitive advantages: an analysis of structural equation modeling
(SEM). Quality & Quantity, 47(1), pp.529-543.
Grüber, S., 2015. Foundation and Challenges of Intangible Values in Financial Accounting and
Reporting. In Intangible Values in Financial Accounting and Reporting (pp. 35-109). Springer
Gabler, Wiesbaden.
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.