Comprehensive Finance Report: Intangible Assets and Valuation

This report provides an overview of intangible assets, which lack physical form but contribute to a company's economic benefits. It defines intangible assets, emphasizing their recognition criteria as per accounting standards, particularly IAS 38. The report details the importance of identifiability and c...Read More

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INTANGIBLE ASSETS

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Abstract:
Intangible asset have no physical existence. These assets leads to flow of economic benefits
to the company. The company has control over them. An asset is only and only considered as
an intangible if it qualifies for the definition of an intangible asset as have been laid down by
the accounting standard. They are measured at cost and then impaired as per their fair value.

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Contents
Introduction:...............................................................................................................................4
Part III:.......................................................................................................................................4
Woolworths Limited..................................................................................................................5
Conclusion:................................................................................................................................5
References:.................................................................................................................................7

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Introduction:
An intangible asset is an asset which does not have any physical existence and has a
useful life of more than one year. These are the standards that are recognised as the part
of an acquisition wherein the acquirer is required to assign in a portion of the purchase
price towards the acquisition of these intangible assets. There are some of the internally
generated assets that would be recognised as on the date of the balance sheet. The
examples of the same include patents, goodwill etc.(IAS plus, 2017).
Part III:
An item is recognised as an intangible assets in the books of accounts only and only if it
meets the definition of the term as has bene laid down by the standard of accounting and that
satisfies in the usual recognition criteria for the asset which has been outlined in the
framework of IASB. IAS 38 states that an intangible asset should be recognised in case the
following takes place: (Accounting tools, 2017)
 It is probable that certain amount of money would flow in to the company in the
future as the result of this asset
 The cost of the same is capable of being measured with reliability. There has to be a
clear certainty with regard to the future economic benefits for the company.
The standard states that the assets have to be measured at their cost. In case, an asset has been
acquired in a normal transaction, then the amount that has been paid in respect of that asset
indicates that there would be some future economic benefits that would entail for the entity in
the future. Also, the asset should have been measured reliably. The intangibles like
copyrights and patents are acquired externally and hence, meets this criteria of measurement.
The cost for these intangible would be the amount that has been paid for these assets and also

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any cost which is incurred for the same so as to make that asset useful. An example of the
same are the legal and the professional fees (CPA Ireland, 2017).
The following is the criteria for the intangibles:
 Identifiability: it to be identified other than goodwill. This is mainly due to the fact
that like the dentition of intangibles, goodwill is also considered to be an asset which
represents the future economic benefits or the service potential of the company which
arises from the other stated asset that have been acquired in the entity and which is the
combination which cannot be identified individually and is not capable of being
recognised separately. The future economic benefits usually benefit from the
potentiality between these identifiable assets that have been acquired. An asset is
considered to be identifiable in case it is capable of being separated or divided form
the entity and is capable of being sold, transferred, licensed, rented or exchanged.
This sale, transfer, license etc could be related with the contract or not and does not
depend on the intention of the company. This mainly arises from the binding
agreements which do not take into account the rights that are transferrable or are
separable from the entity or from any other rights and obligations.
 Control: an entity is stated to have a control over an asset when it has a right over
that asset and has control over the obtaining of the future economic benefits or the
service potential that flows in to the underlying resource and also restricts in the use
of that asset by the others. The capacity of being used by the others of an asset is
granted to the company by the law. The demonstration of control would become
difficult in case there are no legal rights for the same. The legal enforceability of this
right is not important since then the company may be able to control the future
economic benefits that is the result of the asset in some other way or manner. The
market and the technical knowledge could give rise to the future economic benefits or

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the service potential. The entity controls in these benefits or that the service potential
when the knowledge to the intangibles such as copyrights etc. are protected by the
legal rights. For example, the company may have technical staff along with the skilled
staff that is able to render their skills so that the company is able to have some future
economic benefits, but still this trained and technical staff cannot be treated as
intangible asset since the future is not known and the company does not have a
control over them in the future. For the similar reason, the company does not treated
some specific management or some technical talent as an intangible since it fails to
meet the criteria laid down by the accounting standard for an intangible asset.
 Future economic benefits: the future economic benefits or the service potential
which flows from the intangibles to the company. This includes in the revenue which
flows to the company from the sale of the products cost of the savings etc. When the
company uses the intellectual property, then that would reduce in the future
production or the costs pertaining to the services instead of increasing in the future
revenues (AASB, 2017).
Woolworths Limited:
As per the annual report of Woolworths Limited, the significant accounting policy pertaining
to goodwill indicates the excess of the cost of acquisition over and above the fair value of the
shares of the net identifiable assets that have been acquired. In respect of the initial
recognition, the goodwill is measured at cost less the accumulated depreciation and the
impairment and amortisation. Whenever any asset is acquired during the process of business
combination, the cost would show in the fair value as on the date of the acquisition. These
intangibles have a finite life and are amortised over the straight line method over their useful
life. This life is reassessed for each one period.

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These intangible assets are tested for an impartment in each year. This is done to check the
conditions for impairment for an asset. This is the requirement that has been laid down by the
accounting standard (Annual report, 2016).
Conclusion:
In the nutshell, an intangible asset is an asset which cannot be touched or which has no
physical existence and can only be recognised as an asset if the following is satisfied:
 It is probable that certain amount of money would flow in to the company in the
future as the result of this asset
 The cost of the fair value of the asset is capable of being with reliability
Fair value is defined as the amount that the company would receive if it goes into the market
and sells that asset in it.
These assets are not depreciated since they do not have any physical existence. They are ether
amortised over their useful life or are impaired. Impairment occurs when the carrying value
of these assets are more than their fair values in the market. These assets are not easily
assigned in to their value. As per section 197 of the Internal revenue code, there are a number
of different intangible assets but the most common ones are goodwill, the value of the
knowledge that is possessed by a worker, trade mark, trade and franchise names, non-
competitive agreements related to business acquisitions, and a company's human capital.

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References:
Bragg, S. and Bragg, S. (2017). Examples of intangible assets. [online] AccountingTools.
Available at: https://www.accountingtools.com/articles/what-are-examples-of-intangible-
assets.html [Accessed 21 Sep. 2017].
Cpaireland.ie. (2017). Corporate reporting. [online] Available at:
http://www.cpaireland.ie/docs/default-source/Students/Study-Support/P1-Corporate-
Reporting/intangible-assets.pdf?sfvrsn=0 [Accessed 21 Sep. 2017].
Iasplus.com. (2017). IAS 38 — Intangible Assets. [online] Available at:
https://www.iasplus.com/en/standards/ias/ias38 [Accessed 21 Sep. 2017].
wow2016ar.qreports.com.au. (2017). Annual report 2016. [online] Available at:
https://wow2016ar.qreports.com.au/xresources/pdf/wow16ar-full.pdf [Accessed 21 Sep.
2017].
www.aasb.gov.au. (2017). Intangible Assets. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/Exposure_Draft-
ED_40_Intangible_Assets-May_2009-Pending.pdf [Accessed 21 Sep. 2017].