Financial Accounting and Reporting 2: Analysis of Intangible Assets

This report focuses on the financial accounting and reporting of intangible assets, specifically addressing the guidelines outlined in AASB 138. It begins by defining the standard's objectives and scope, emphasizing the recognition criteria for intangible assets. The report details the conditions under which intangible assets are recognized, highlighting the importance of future economic benefits and reliable cost measurement. It differentiates between identifiable and unidentifiable assets, discussing their implications. The report also covers the initial measurement of intangible assets at cost, with special considerations for non-profit organizations. Furthermore, it clarifies the treatment of research and development expenses, stating that research phase expenses must be recognized in the period incurred. The report offers examples of research activities and provides a comprehensive overview of the standard, supported by relevant references.

Running head: FINANCIAL ACCOUNTING AND REPORTING
Financial accounting and reporting
Name of the student
Name of the university
Student ID
Author note

1FINANCIAL ACCOUNTING AND REPORTING
IAS 38 / AASB 138 on Intangible Assets
AASB 138 - Intangible assets was amended and issued by IASB (International
accounting standardboard). The main objective of the standard is prescribing accounting
implications for intangible assets those are not dealt specifically with any other standard. As
per this standard the company shall recognize the intangible assets if some specific conditions
are met. Further, it also stated the way in which carrying amount of the intangible assets shall
be measured and needs specific disclosures for the intangible assets (Aasb.gov.au, 2018).
This standard for intangible assets shall be applicable except –
 The intangible assets are treated under the scope of any other standard.
 Measurement and recognition of evaluation and exploration assets
 Financial assets those are defined under AASB 132 for financial instrument
 Expenses on extraction and development of oil, natural gas, minerals and similar
kind of non-regenerative resources (Axtle-Ortiz, 2013).
Definition for intangible assets requires that the intangible assets shall be
distinguishable or identifiable from the goodwill. The asset will be identifiable if –
 It is distinguishable, that is capable to be divided or separated from the organization
and transferred, sold, exchanged, rented or licensed either along with the related
contract or individually, identifiable liability or asset irrespective of whether the
company intends to or not. Or,
 Generates from legal rights or contractual rights irrespective of whether the rights are
separable or transferrable from the company or from other obligations or rights
(Steenkamp & Steenkamp, 2016).
Further, the intangible asset would be recognized if –
 It is apparent that future economic benefits from the asset will inflow to the company
and
 The asset’s cost are able to be reliably measured
The company shall assess probability of potential future economic profit through
supportable and measurable suppositions that represents the best estimate by the management
for the economic scenarios that may remain over the asset’s useful asset.

2FINANCIAL ACCOUNTING AND REPORTING
Initially the intangible asset must be calculated at cost. However, with regard to the
non-profit organizations where asset is obtained either for no cost or for nominal cost, the fair
value of the asset at the date for acquisition shall be considered as fair value.
The intangible assets generate from the research project or from the phase of research
under internal project must not be recognized. Expenses on research or on from phase of
research of the internal project must be identified as the expenses at the time when it will be
incurred. The examples for research activities are mentioned below –
 Activities that is aimed for obtaining any new knowledge
 Search for the evaluation and the final selection, the application for research findings
or the other knowledge
 The design, formulation, final selection an devaluation of the possible alternatives for
improved or new materials, products, devices, services, systems and processes
 Search of the alternatives for materials, products, devices, services, systems and
processes (Russell, 2017).

3FINANCIAL ACCOUNTING AND REPORTING
Reference
Aasb.gov.au. (2018). [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-
18.pdf [Accessed 8 May 2018].
Axtle-Ortiz, M. A. (2013). Perceiving the value of intangible assets in context. Journal of
Business Research, 66(3), 417-424.
Russell, M., (2017). Management incentives to recognise intangible assets. Accounting &
Finance, 57(S1), pp.211-234.
Steenkamp, N., & Steenkamp, S. (2016). AASB 138: catalyst for managerial decisions
reducing R&D spending?. Journal of Financial Reporting and Accounting, 14(1),
116-130.