Financial Accounting Process: Reporting and Decision Making Analysis

This report provides a detailed analysis of the financial accounting process, focusing on the recognition, measurement, and disclosure of intangible assets in accordance with AASB 138. It addresses two scenarios, the first examining general accounting principles and the second focusing on the treatment of research and development costs for ChiHerbal Ltd. The report explains how capitalized development costs can be considered intangible assets and should be reported in the financial statements, emphasizing the importance of identifying intangible assets that provide future economic benefits to the business. It also covers the criteria for recognizing intangible assets, including the probability of future economic benefits and the ability to reliably measure the cost of the assets. The document concludes that all expenses incurred on R&D by ChiHerbal Ltd should be recorded in the financial statement to ensure proper recognition of intangible assets.

Running head: FINANCIAL ACCOUNTING PROCESS
Financial Accounting Process
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Table of Contents
Answer to Scenario 1:................................................................................................................2
Answer to Question A:...........................................................................................................2
Answer to Question B:...........................................................................................................4
Answer to Scenario 2:................................................................................................................4
Answer to Question 3:................................................................................................................6
Answer to question 4:.................................................................................................................7
References:.................................................................................................................................9

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Answer to Scenario 1:
Answer to Question A:

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Answer to Question B:
Answer to Scenario 2:

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Answer to Question 3:

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Answer to question 4:
The AASB 138 Intangible assets explains that an intangible asset as the identifiable
non-monetary assets without the physical substance (Carlon et al. 2015). The objective of
AASB 138 is to account regarding intangible assets that recognized measured and disclosed
in the financial statements. The standard helps in defining the treatment for the identifiable
and non-identifiable intangible assets along with those that are generated internally and
externally. Research undertaken for improving, planning and researching in relation to

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products is held as development costs (Maynard 2017). It is worth mentioning that the
product must have the influence on business and must relate for the purpose such cost is
incurred.
ChiHerbal Ltd uses the capitalized method of recognizing the development costs and
these expenses may be considered as intangible assets. Such costs are held as general
expenses and should be differentiate amid the capitalized costs and general expense related to
assets use. In context of AASB 138 the expenses incurred on Research & Development
should be stated in the financial report of a company as it helps in recognizing the intangible
assets (Hoskin, Fizzell and Cherry 2014). An intangible asset should be identified when it
originates and may be separable from the rest of the entity. The standard requires the
recognition of the intangible assets when it has economic benefit to the business.
In accordance with the conceptual framework, the standard of AASB 138 requires the
intangible assets to be identified when it is probable that the future economic benefit would
flow to the company and the cost of assets can be measured reliably (Russell 2017). Cost
occurred on patent, research, design modification and legal expenses falls under the standard.
In line with the provision of AASB 138 the total sum incurred on R&D should be recorded
into the financial statement of ChiHerbal Ltd as it helps in recognizing the intangible assets.

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References:
Carlon, S., McAlpine-Mladenovic, R., Palm, C., Mitrione, L., Kirk, N. and Wong, L.,
2015. Financial accounting: Reporting, analysis and decision making. John Wiley and Sons
Australia.
Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user
perspective. Wiley Global Education.
Maynard, J., 2017. Financial accounting, reporting, and analysis. Oxford University Press.
Russell, M., 2017. Management incentives to recognise intangible assets. Accounting &
Finance, 57, pp.211-234.