Intangible Assets and Defined Benefit Plans

This assignment focuses on the accounting treatment of intangible assets and defined benefit plans. It requires students to understand the criteria for recognizing intangible asset development costs, apply fair value measurement principles, and calculate the net defined benefit liability. The document provides detailed requirements and prompts for each section, guiding students through the process of accounting for these complex financial instruments.

Running head: FINANCIAL REPORTING
Financial Reporting
Name of the Student:
Name of the University
Author Note

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FINANCIAL REPORTING
Table of Contents
Answer to Question 1......................................................................................................................2
Requirement 1..............................................................................................................................2
Requirement 2..............................................................................................................................2
Requirement 3..............................................................................................................................3
Answer to Question 2:.....................................................................................................................4
Requirement a:.............................................................................................................................4
Requirement b:.............................................................................................................................5
Answer to Question 3......................................................................................................................6
Answer to Question 4:.....................................................................................................................7
Requirement 1:.............................................................................................................................7
Requirement 2:.............................................................................................................................7
Requirement 3:.............................................................................................................................7
Requirement 4:.............................................................................................................................8
Requirement 5:.............................................................................................................................8
Requirement 6:.............................................................................................................................8
Requirement 7:.............................................................................................................................9
References and Bibliography.........................................................................................................10

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Answer to Question 1
Requirement 1
The issue that has been presented in the question is that the term fair value is used in
different ways, which makes it difficult for the users of the financial statements to understand.
The different ways in which this particular term can be utilized has been listed down as follows:
 The term ‘fair value’ is utilized for the purpose of accounting
 The fair market value as commonly used in the ATO’s definition of market value
 The term is also used by the courts
The Australian Accounting Standards Board has taken enough initiative in regards to this
particular issue. The particular standard that has been established by the Board is AASB 13.
AASB 13 aims to define the particular concept of fair valuation. This will help the users of the
financial statements to understand and evaluate the financial position of the company (Lockwood
2015). The AASB 13 defines fair value as the price that an entity would get while selling a
particular asset or would pay in order to transfer a particular liability in the form of an orderly
transaction between the market participants at the measurement date. This particular standard
further sets up the framework for carrying out the measurement of the fair value. Moreover, it
lists down the required disclosures that should be produced in the annual report of the company
in regards to the fair value measurements (Abbott and Tan‐Kantor 2017).
Requirement 2
The shares that have been mentioned in the question will be valued at $0.70 cents as
mentioned in AASB 13. This is because the accounting standard AASB 13 mentions that the fair

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FINANCIAL REPORTING
value of an asset or liability is the value that has been paid or received for selling or transferring
a particular asset in the principal market at the measurement date in regards to the present
conditions in the market. The present conditions in the market help in the estimation of the exit
price irrespective of the fact that the price has been directly observable or has been estimated by
the utilization of any other valuation technique (Hu, Percy and Yao 2015).
However, the Australian Accounting Standards Board further defines the valuation
technique of the shares in AASB 2. AASB 2 states that in case of a share based settlement
transaction the concerned entity shall value the shares on the basis of the market price at the
measurement date. However, if the market price is not available then the entity may undertake a
particular valuation technique in regards to fair valuation of the shares. Therefore, the valuation
of the shares depends on the transactions incurred (Loyeung and Matolcsy 2015).
The market should understand the reasons for valuing the shares on the basis of exit price
because the transfer of the ownership of the shares will also result in the transfer of the risk
associated with such financial instruments (Loyeung and Matolcsy 2015).
Requirement 3
The particular accounting standard that has been established by the Australian
Accounting Standards Board in regards to the preparation of the financial statements and the
annual report of a listed organization is AASB 101. This particular accounting standard aims to
provide the guidelines in which the annual report of a company has to be prepared. It also states
the mandatory information that should be present in the financial report of an entity in the form
of accounting disclosures or other associated format. Thus, it is not possible for a listed entity to
make the choice in regards to the result that produces the lowest negative information and the

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greatest profit. Moreover, hiding the losses in order to attract more investors would account to
material misstatement in the books of accounts and can be easily detected by an auditor by the
following the guidelines provided in AASB 108 (Hodgson and Russell 2014).
Answer to Question 2:
Requirement a:
Dr. Cr.
Date Amount Amount
30-07-2018 Impairment Loss-Goodwill A/c. 35000
Accumulated Imapirment Loss-Goodwill A/c. 35000
Profit & Loss A/c. 35000
Impairment Loss-Goodwill A/c. 35000
Particulars
In the books of New Technology
Journal Entry
Workings:
Particulars Amount
Factory 250000
Inventories 150000
Brand 50000
Goodwill 50000
Total Carrying Amount of CGU 500000
Fair value of CGU 465000
Impairment Loss 35000
a. Computation of Impairment Loss:

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Requirement b:
Dr. Cr.
Date Amount Amount
30-07-2018 Impairment Loss A/c. Dr. 77000
To, Accumulated Imapirment Loss-Goodwill A/c. 50000
To, Accumulated Imapirment Loss-Factory A/c. 15000
To, Accumulated Imapirment Loss-Inventories A/c. 9000
To, Accumulated Imapirment Loss-Brand A/c. 3000
Profit & Loss A/c. Dr. 77000
To, Impairment Loss A/c. 77000
Journal Entry
Particulars
In the books of New Technology
Workings:
Particulars Amount
Factory 250000
Inventories 150000
Brand 50000
Goodwill 50000
Total Carrying Amount of CGU 500000
Fair value of CGU 423000
Impairment Loss 77000
Less: Goodwill 50000
Impairment Loss exclg.
Goodwill 27000
b. Computation of Impairment Loss:
Allocation of Impairment Loss:
Particulars Amount Weight
Impairment
Loss
Factory 250000 56% 15000
Inventories 150000 33% 9000
Brand 50000 11% 3000
TOTAL 450000 100% 27000

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Answer to Question 3
The Australian Accounting Standards Board, in the particular standard, AASB 138, has
defined the difference between ‘research’ and ‘development’ in relation to intangible assets.
The particular accounting standard states that an intangible asset that arises from research
or from the period of research that has been undertake by the listed entity as a part of the internal
project shall not be recognized. However, the expenditure that has been incurred by the entity
can be realized as expenses. Moreover, in the duration of the internal research phase an
organization will not be able to realize an intangible asset on the basis of the assertion by the
management, that the particular asset will generate economic benefit for business in the future.
Some examples of the research activities that can be realized as expenditure are the cost of
activities that have been undertaken to gain new knowledge; the expenditure incurred for
evaluating and testing the different alternatives in regards to the business processes (Steenkamp
and Steenkamp 2016).On the other hand, an intangible asset that arises on the account of
development shall only be recognized and capitalized if it fulfills the following conditions:
 The entity has the technical capability to develop the intangible asset and obtain the
desired economic benefit
 The entity does not lack the initiative to complete the intangible asset
 The entity is capable enough to utilize the intangible asset
 The entity provides enough overview into the targeted market where it desires to sell the
intangible asset or the area where it intends to use it in the organization in order to
generate future economic benefits
 The entity has acquired enough resources in terms of finance and technology to complete
the development of the intangible asset

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 Lastly, the entity shall also possess the ability to recognize the expenditures that have
been incurred during the period of development of the intangible asset
Answer to Question 4:
Requirement 1:
Particulars Amount
Fair Value of plan assets as on 30/6/17 1,00,47,500
Present Value of Defined benefit obligation
on 30/6/2017 1,07,50,000
Deficit of CHL's Defined Plan Benefit (7,02,500)
Requirement 2:
The net defined benefit liability at 30/6/2017 would be the deficit of CHL’s defined plan
benefit, which is $7,02,500.
Requirement 3:
Particulars Amount
Present Value of Defined benefit obligation
on 1/7/16 1,00,00,000
Add: Past Service Cost 0
1,00,00,000
Interest Rate for 30/6/17 0
Interest on Benefit Obligation 9,00,000
Fair Value of Plan Assets on 1/7/16 95,00,000
Interest Rate for 30/6/17 0
Interest on Plan Assets 8,55,000
Net Interest for 30/6/17 45,000

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Requirement 4:
Particulars Amount
Present Value of Defined benefit obligation
on 1/7/16 1,00,00,000
Interest Rate for 30/6/17 0
Interest Rate for 30/6/16 0
Actuararial Gain on Defined Benefit Obligation 1,00,000
Requirement 5:
Particulars Amount
Fair Value of Plan Assets as on 30/6/17 1,00,47,500
Opening Balance of Plan Assets 95,00,000
Interest Income 8,55,000
Contributions Received 10,00,000
Benefits Paid (12,00,000)
Total 1,01,55,000
Return on Plan Assets exl. Interest (1,07,500)
Requirement 6:
Net defined
benefit liability
Defined benefit
obligation Plan assets
$ $ $
Balance 1 July 2017 5,00,000 1,00,00,000 95,00,000
Interest 9,00,000 8,55,000
Current service cost 11,50,000
Contributions received by fund 10,00,000
Benefits paid by fund (12,00,000) (12,00,000)
Return on plan assets excluding interest
recognised * (1,07,500)
Actuarial loss on re-measurement of DBO (1,00,000)
Balance 30 June 2017 7,02,500 1,07,50,000 1,00,47,500

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Requirement 7:
Dr. Cr.
Date Amount Amount
30-06-2017 Superannuation Expenses A/c. Dr. 12,02,500
To, Bank A/c. 10,00,000
To, Net Superannuation Liability A/c. 2,02,500
Profit & Loss A/c. Dr. 11,95,000
Other Comprehensive Income A/c. Dr. 7,500
To, Superannuation Expenses A/c. 12,02,500
Particulars
Profit or Loss
Other
comprehensive
Income
Bank Net
DBL(A)
Balance 1 July 2016 5,00,000
Net interest (45,000)
Service cost (11,50,000)
Contributions paid to the fund (10,00,000)
Gain/Loss on plan assets (ex. interest) (1,07,500)
Actuarial loss on DBO 1,00,000
Journal entry (11,95,000) (7,500) (10,00,000) (2,02,500)
Balance 30 June 2017 7,02,500

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References and Bibliography
AASB, C.A.S., 2014. Financial Instruments. Project Summary.
Abbott, M. and Tan‐Kantor, A., 2017. Fair Value Measurement and Mandated Accounting
Changes: The Case of the Victorian Rail Track Corporation. Australian Accounting Review.
Carrol, A. and Laing, G., 2016. Manipulation of earnings through correction of prior period
errors (AASB108): An empirical test. e-Journal of Social & Behavioural Research in Business,
7(1), p.16.
Hodgson, A. and Russell, M., 2014. Comprehending comprehensive income. Australian
Accounting Review, 24(2), pp.100-110.
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.
Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment Loss
and Goodwill Impairment Test-Related Disclosures in Australia.
Lockwood, A., 2015. There's no containing water asset valuation methodologies. Water: Journal
of the Australian Water Association, 42(3), p.36.
Loyeung, A. and Matolcsy, Z., 2015. CFO's accounting talent, compensation and turnover.
Accounting & Finance, 55(4), pp.1105-1134.
McGregor-Lowndes, M., Poole, G., Flack, T. and Marsden, S., 2014. Defining and Accounting
for Fundraising Income and Expenses: Executive Summary: ACPNS Current issues Information
Sheet 2014/2.

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Qu, X., Percy, M., Stewart, J. and Hu, F., 2016. Executive stock option vesting conditions,
corporate governance and CEO attributes: evidence from Australia. Accounting & Finance.
Simpson, L., 2015. Valuations for taxation: Practical implications of the IGT review. Taxation in
Australia, 49(10), p.613.
Steenkamp, N. 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.