Financial Accounting Analysis of ChiHerbal Ltd - ACCT6003

This report analyzes the financial accounting practices of ChiHerbal Ltd, a company that transitioned from a partnership to a private and then a public company structure. The report addresses various scenarios, including the application of AASB 138 to intangible assets, specifically focusing on research and development expenditures. It examines the capitalization of costs, differentiating between research and development phases, and considers the economic impact of these decisions. The analysis includes considerations for the recognition of intangible assets, differentiating between capitalized costs and general business expenditures, and the importance of accurate financial statement disclosures. The report also references relevant accounting standards and provides insights into the management of financial reporting, emphasizing the importance of proper accounting for intangible assets.

Running head: ADVANCE FINANCIAL ACCOUNTING
Advance Financial Accounting
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to Scenario 1:................................................................................................................2
Answer to A:..........................................................................................................................2
Answer to B:..........................................................................................................................4
Answer to Scenario 2:................................................................................................................4
Answer to Scenario 3:................................................................................................................6
Answer to Scenario 4:................................................................................................................8
References:...............................................................................................................................10

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Answer to Scenario 1:
Answer to A:

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Answer to B:
Answer to Scenario 2:

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Answer to Scenario 3:

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Answer to Scenario 4:
As stated under the provision of AASB 138, the intangible asset cannot be considered
as the physical asset in nature. The primary purpose of developing technology is to improve
the sales for ChiHerbal Ltd. Cost associated with the asset development can be capitalized or
the same can be recognized as the intangible asset (Steenkamp and Steenkamp 2016). Any
form of research work that is made with the purpose of improving, researching and planning
in context of the product should be regarded as the development cost. The product must
possess the economic influence on the business so that it can identify development cost. The
cost associated with the product or research work relating to the object must be taken into the
consideration based on the provision of AASB 138.
In the current case study of ChiHerbal Ltd the capitalized method is employed to
identify the development expenditure. The expenditure should be considered as the
capitalized or the intangible asset (Russell 2017). Consequently, the other costs should be
regarded as general expenditure of business. Therefore, it is essential for ChiHerbal Ltd to

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differentiate among the capitalized costs and the general expenditure associated to the use of
asset. The management is accountable for recognizing the expenditure separately to recognize
the intangible asset. Based on the provision of the AASB 138, the total amount that is spend
on the R&D of the product must be declared in the fiscal statement of an organization as this
helps in identifying the intangible assets.
Cost associated to research, patent application fees, research for design modification
and legal expenditure should be considered under the provision of AASB 138. They are
termed as the intangible asset based on the provision of AASB 138.

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References:
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.