Snow Protek R&D Cost Analysis

This assignment analyzes the intangible assets held by Snow Protek Limited, focusing on brand value and research & development (R&D) costs. It discusses how the carrying amount of brand name should be adjusted upwards to its current market value. Furthermore, it highlights the importance of adhering to AASB 138 guidelines for accounting for R&D expenditures, emphasizing the need to subtract taxation amounts from prior accounting periods.

INTANGIBLE ASSETS

INTRODUCTION
An asset in the company which cannot be measured through monetary terms and values
along with not physical in nature, is considered as an intangible asset. The study reflects about
AASB 138 which relies from intangible asset's treatment and on the basis of this, some
suggestions are given to the manager of Snow Protek Limited company. Apart from this, it
concerns with basically two aspects of intangible assets like brand value as well as research and
development asset at cost.
MAIN BODY
In the corporate, intangible assets include various intellectual rights like patent,
copyright, trademarks etc. and brand value or goodwill etc. In order to make accounting
treatments of the intangible assets in balance sheet within workplace, Australian Accounting
Standards Board (AASB) 138 is taken into account by the management. As per the present
scenario, managing director makes expenses on advertising and marketing worth of $300,000.
On the other hand side, purchased intangible asset amortises in the next accounting period. In
addition to this, the MD wishes that level of brand valuation will be amortised or enhanced in
upcoming year. According to the cost model of AASB 138, any kind of costs associated with the
intangible asset shall be carried out in the next year (AASB 138: Intangible Assets, 2007). Due to
this law it has been advised to the MD of Snow Portek Limited that, brand value adjusted with an
increasing amount due to making marketing expenses. As per the revaluation model of intangible
assets, the amount of brand value of selected asset must be carried out in the balance sheet on the
basis of revalued amount. After completing recognition or any kind of amortisation of the
intangible asset, whatever amount comes into consideration that would be treated in the books of
financial position. Moreover, fair value of the asset at the time of revaluation must be determined
after considering base to the active or present market situation.
On the basis of such above both the models like cost and revaluation of the intangible
asset, it can be advised to the MD of Snow Portek Limited company that, brand value must
treated after increasing at the end of year. An amount in which depreciation and amortisation
values are subtracted or included respectively is known as the carrying amount. In the present
study, total carrying amount and brand value of Snow Portek Limited is worth of $880000
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(1100000×80%) instead of $800000. The reason is estimated value of brand after revaluation is
increased by $10000.
When looking at the another intangible asset i.e. research and development asset then as
of now its value is worth of $1,710,000. As per the rules of AASB 138, expenses and costs
incurred in the company in order to develop, research and investigate any new product or
services are marked in the research and development cost (AASB 138: Intangible Assets, 2015).
In the present case study, Snow Protek Limited researches and develops two projects like face
cream as well as the new fabric. In these both the projects, all the costs and expenses associated
are related to the new research and development only. There is not any cost is out of the R&D
asset criteria due to which any kind of further adjusted are required to accomplish (Research and
development accounting, 2013). Under the face cream project, both prior and current accounting
year's expenses are regarding to researching on impact of rays, protect the skin and develop the
cream. Total cost incurred in order to investigate, research and development of first project is
worth of $1,260,000.
Under the second project which is about researching and developing of new fabric, total
cost reflected is worth of $450,000. In this also, prior and current year's expenses are considered
by the MD of cited limited company. According to the AASB 138, taxes included in the prior
accounting year are not included in the adjusted R&D cost of intangible asset (AASB 138 –
Intangible Assets, 2016). Therefore, it can be suggested to managing director of Snow Protek
firm that he should subtract that taxation amount imposed on prior accounting year. Due to this,
total expenses of research and development of asset will be declined. Further, carrying amount in
the Snow Protek firm for R&D will be total current accounting period's expenses + (prior
accounting year's cost – taxation amount of prior R&D expenditures).
CONCLUSION
It can be concluded from the above analysis that, brand value of Snow Protek Limited
company is lower as of now and will be increased after amortisation as well as adjustments. In
this MD of the firm should adjust value of brand name with increasing which is worth of
$880000. Under the second intangible asset i.e. research and development cost, taxation amount
of prior accounting period needs to subtract from the total expenditures. Further, all the costs
relied from criteria of the R&D asset as per the AASB 138.
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REFERENCES
AASB 138 – Intangible Assets, 2016. [Online]. Available through:
<https://lawpath.com.au/blog/aasb-138-intangible-assets> [Accessed on 2nd October 2017].
AASB 138: Intangible Assets, 2007. [Pdf]. Available through:
<http://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPapr07_07-
07.pdf> [Accessed on 2nd October 2017].
AASB 138: Intangible Assets, 2015. [Pdf]. Available through:
<http://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-
18.pdf> [Accessed on 2nd October 2017].
Research and development accounting, 2013. [Online]. Available through:
<https://www.accountingtools.com/articles/research-and-development-accounting.html>
[Accessed on 2nd October 2017].
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