Financial Accounting Report: Intangible Assets and AASB 138/IAS 38

This financial accounting report examines the treatment of intangible assets under AASB 138/IAS 38. The report analyzes Technology Enterprises Ltd's research and development project concerning battery recharging technology, and the valuation of related intangible assets like patents. It discusses the recognition and measurement of intangible assets, differentiating between research and development costs, and the impact of these costs on the financial statements. The report further explores the comparability of AASB 138/IAS 38, emphasizing the importance of consistent application of accounting standards. It also offers recommendations regarding financial reporting, disclosure, and the valuation of intangible assets to investors. The report highlights the key features of intangible assets and their accounting treatment, including the recognition criteria, initial measurement, and subsequent review for impairment. The report also provides recommendations for financial reporting, emphasizing the importance of disclosures and valuation of assets.

Running head: FINANCIAL ACCOUNTING ASSIGNMENT
Financial Accounting
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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
AASB 138/IAS 38.......................................................................................................................2
Recognition of Intangible Assets.................................................................................................3
Measurement of Intangible Assets...............................................................................................3
Research Costs.............................................................................................................................4
Development of Asset..................................................................................................................4
Comparability of AASB138/IAS 38............................................................................................5
Understanding of AASB 138/IAS 38..........................................................................................6
Recommendations............................................................................................................................7
References........................................................................................................................................8

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Introduction
Technology Enterprises Ltd is a listed Company that is working on a research and
development project whereby the company is undertaking a project for the purpose of analysis
and including the same in the financial budgeting process. The company carried on a research
and development process whereby the company would do the method of recharging batteries for
the next two-years and the expected economic benefits that the company expects to receive from
the same would be for 10-years (Ramachandra 2017).
Discussion
The present value of the project can be well estimated using the present value technique
for the purpose of determining the actual fair value that will be received by the company. The
estimated fair value of the project was around $4,000,000. On the other, hand the fair value of
the research or the patent had a total value of around $3,000,000. There is a substantial
difference between the reported value and market capitalisation of the stock, which states the fair
value of the company. The difference can be well accounted for the various reasons whereby the
balance sheet of the company contains various assets and liabilities in the form of historical, fair
value and cost value.
AASB 138/IAS 38
AASB 138/IAS 38 define the intangible assets of the company as intangible non-
monetary assets, which are not having any physical substance. The key features of intangible
assets is that its existence is not clear in the form of physical substance and non-monetary in
nature. The AASB 138/ IAS 38 defines the monetary and non-monetary assets of the company
and subsequently (Steenkamp and Steenkamp 2016). The intangible assets of the company can

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be formed up in the form of acquisition or in the form of internally generated goodwill for the
company. The AASB 138/ IAS 38 will be reflecting the value of the assets based on the value
created by the asset (Bond, Govendir and Wells 2016).
Recognition of Intangible Assets
The company can recognise recognition of financial asset of the company when it is for
sure that the future economic benefits will be flowing directly to the entity. It is necessary that
the cost of the assets should be measured reasonably by the company excluding the cost and
expenses done by the company in the form of benefits flowing to the company less any research
cost spend by the firm (Fraser 2018). The total cost that is incurred by the firm on the asset is
around $100,000, which should be expenses by the company.
Measurement of Intangible Assets
The measurement of the assets would be done at the initial cost value for the firm
whereby the internally generated asset would be reported at the value of around $ 4,000,000. The
internally generated asset of the company meets the standard for the company in the form of
current accounting standards like AASB 138/IAS 38. The expenses done by the company in the
form of cost or time spent by the company in the form of research and development thereby
evaluating the possible alternative methods would be taken into consideration for the purpose of
analysis (Russell 2017). The cost for research and development in accordance with the AASB
138 standard will be recognised in the income statement of the company as a part of sunk cost
(Dinh et al., 2015).
The internally generated assets of the company may be created over a period for the
company. In contrast to acquisition or in the form of business combination whereby a company
acquires the same as a process of business consolidation showing the excess of the purchase

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consideration in the form of goodwill for the company. According to AASB 138/IAS38 the value
that would be recognised by company will be at acquisition value and the same would be
reviewed periodically by the company for the purpose of impairment (Alawey, Khalaf and
Ahmed 2019).
Research Costs
In accordance with the AASB 138/ IAS 38 defined in the paragraph 8 of the section that
the original and planned investigation would be undertaken for the prospects of gaining better
scientific and technical knowledge can be considered as the research. The cost incurred by the
company does match up with defined accounting standard whereby the costs incurred by the
company were for increasing the economic life of batteries and the same would benefit the
company in the form of cash flows that would be received by the company for a sum of ten-
years. The company undertook researching for the best and alternative models in the initial set of
years and the same was in accordance with the accounting standard of the company (Malone,
Tarca and Wee 2016).
Development of Asset
According to AASB 138, a company can say that asset is developed when the research
phase for the project is almost completed and the outlay of the project is in the form of developed
asset. The company can significantly do the recognition for the asset when the technical
feasibility of the same is proved and the ability of usage and selling of the same asset can be
done in a significant manner. It is also important as defined by the accounting standard for
identifying the value of the asset in the balance sheet of a company it is necessary that the
technical feasibility of the same is proved (Bodle et al., 2018). Technology Enterprise Ltd has
developed the asset for the company by conducting significant research cost on the same. The

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company after conducting the feasibility analysis for the project has estimated that the project on
a total would be creating a value of 4 million for the company (Su and Wells 2018).
Comparability of AASB138/IAS 38
The comparability feature for the AASB 138/IAS 38 can be well reflected with the help
of the accounting standards and regulations placed by the company whereby the recognition and
measurement of the asset is well defined whereby company follows defined norms and condition
for identifying the same in the company. Either the intangible assets of the company acquired
through the process of business combination or goodwill should be measured at the cost value
for the company and the same is widely applicable for all companies following the Australian
Accounting Standard Board (Weaven, Frazer and Blue 2017). The intangible assets of the
company are identifiable, non-monetary in nature of existence and lacks physical occurrence.
The recognition of the asset and the measurement of the asset depends from company whereby
the benefits that the company expects to receive from the same should be recognised in the form
of asset for the company. The relevant costs incurred by the company in the form of developing
and researching should be classified as an expenses for the company (Tran and Zhu 2017).
The accounting standard of AASB 138/IAS 38 also states that if the company acquires
the intangible asset of the company as part of a separate assets the profit of the same needs to be
recognised similarly by the company. The accounting standard guidelines for the purpose of the
recognition of the assets and the development of the assets and the relevant costs that would be
incurred by the company in the form of research costs and development cost need to be
substantially capitalised by the company. It is essential that the financial statement of the
company provide the feature of comparability whereby the company undertakes various factors
into consideration. The comparability feature of the financial report for a company should be

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such so that it helps the company in making important financial decision about the company. It is
to be noted that that if the valuation, recognition and measurement criteria taken for the company
differs highly by the company in the field of valuation and recognition of the assets in the
financial asset then various expenses and classification the same could create a material
difference in the balance sheet of the company.
The rules placed by the AASB 138/ IAS 38 in the field of accounting standards is such
that lays down various necessary rules and regulation that is placed by the company for treatment
of the various expenses and development observed. The research cost incurred by the company
for researching about a project or a software/asset should be treated as a sunk cost and should be
directly treated as a expenses in the income statement of the company rather than capitalising the
same. It is according to the classification, recognition and measurement method that is applied in
the financial statement of the company, which makes it easy for the company to classify and
record the same.
Understanding of AASB 138/IAS 38
According to the AASB 138/IAS 38 standard, the same defines that intangible assets of
the company are identifiable non-monetary assets of the company, which are non- monetary in
nature and lacks physical appearance. The asset identified as an intangible asset should be
separable from the company in the form that the same can be exchanged or sold in the market.
The AASB 138/ IAS 38 defines the monetary and non-monetary assets of the company and
subsequently (Alawey, Khalaf and Ahmed 2019). The intangible assets of the company can be
formed up in the form of acquisition or in the form of internally generated goodwill for the
company. The AASB 138/ IAS 38 will be reflecting the value of the assets based on the value
created by the asset. The measurement of the intangible assets would be done at the initial cost

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value for the firm whereby the internally generated asset would be reported at the cost value
(Cheung and Lau 2016). The company can recognise recognition of financial asset of the
company when it is for sure that the future economic benefits will be flowing directly to the
entity. It is also understood that the accounting standard for identifying the value of the asset in
the balance sheet of a company it is necessary that the technical feasibility of the same is proved.
Recommendations
According to the financial reporting standards, accounting policies and regulations the
financial report of the company should be such that allows the company in reporting values of
the assets and liabilities according to the standards of the company. The company can mitigate
the concerns of the investors by undertaking a series of disclosures done by the company
whereby the information concerning the valuation of the asset will be done at a periodical
interval for the company. Valuation and recognition of the financial assets of the company
should be made by estimating the financial viability of the asset as estimated by the Technology
enterprises where the value of the asset was determined by assessing the financial viability of the
same. The company should follow and mandate necessary rules and regulations as mandated by
the company in the form of compliance and disclosure of the financial assets for the company.
Interpretation of the financial information concerning about the assets and liabilities of the
company can be well treated by the company with the help of the financial disclosure made by
the company. The same would be concerning about the economic benefits flowing to the
company, the time for which the cash flows will be received by the company and the market
value for such an asset.

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References
Alawey, M.H., Khalaf, Y.M. and Ahmed, Y.A.K., 2019. Measurement and disclosure of
intangible assets and their implications for investment decisions A comparative application study
in light of the requirements of IAS 38 and the uniform accounting system. Journal of
Administration and Economics, 4(44), pp.1-27.
André, P., Dionysiou, D. and Tsalavoutas, I., 2018. Mandated disclosures under IAS 36
Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’
forecasts. Applied Economics, 50(7), pp.707-725.
Bodle, K., Brimble, M., Weaven, S., Frazer, L. and Blue, L., 2018. Critical success factors in
managing sustainable indigenous businesses in Australia. Pacific Accounting Review, 30(1),
pp.35-51.
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairment decisions by
Australian firms and whether this was impacted by AASB 136.
Cheung, E. and Lau, J., 2016. Readability of Notes to the Financial Statements and the Adoption
of IFRS. Australian Accounting Review, 26(2), pp.162-176.
Dinh, T., Eierle, B., Schultze, W. and Steeger, L., 2015. Research and development, uncertainty,
and analysts’ forecasts: The case of IAS 38. Journal of International Financial Management &
Accounting, 26(3), pp.257-293.
Fraser, J., 2018. Alternative assets insights: Budget announcements thin capitalisation. Taxation
in Australia, 53(2), p.90.
Malone, L., Tarca, A. and Wee, M., 2016. IFRS non‐GAAP earnings disclosures and fair value
measurement. Accounting & Finance, 56(1), pp.59-97.

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Ramachandra, S., 2017. Does NZ IFRS 38 Impact Equity Values and Borrowing Capabilities?
Evidence from New Zealand. Asian Journal of Business and Accounting, 4(2).
Russell, M., 2017. Management incentives to recognise intangible assets. Accounting & Finance,
57, pp.211-234.
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.
Su, W.H. and Wells, P., 2018. Acquisition premiums and the recognition of identifiable
intangible assets in business combinations pre-and post-IFRS adoption. Accounting Research
Journal, 31(2), pp.135-156.
Tran, A. and Zhu, Y.H., 2017. The impact of adopting IFRS on corporate ETR and book-tax
income gap. Austl. Tax F., 32, p.757.
Weaven, S., Frazer, L. and Blue, L., 2017. Critical success factors in managing sustainable
indigenous businesses in Australia.