Accounting Homework: NZ-IAS 38 Intangible Assets Analysis

This accounting assignment focuses on the principles of NZ-IAS 38, specifically addressing the recognition and measurement of intangible assets. The assignment solution begins by defining intangible assets and outlining the criteria for their initial measurement, including the requirement of probable future economic benefits and reliable cost measurement. It differentiates between the measurement of assets acquired separately, in a business combination, and those generated internally. The solution then applies these principles to a case study involving Two Rocks Limited, determining which expenditures should be expensed versus capitalized, and providing calculations to determine the value of intangible assets. The assignment also includes a calculation of the intangible assets acquired in a business combination, separating the value of the tangible assets from the intangible assets like patents and brand names. References to relevant academic literature are provided.

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the university:
Authors Note:

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Table of Contents
Answer to Question i:......................................................................................................................2
Answer to Question ii:.....................................................................................................................2
Reference.........................................................................................................................................5

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Answer to Question i:
The Para 21 of the NZ-IAS 138 provides that the Intangible assets are initially measured
by an organization only if there is reasonable certainty that the use of intangible assets would
resulted in inflow of economic benefits to the organization in the future (Low et al., 2015). In
addition to this, the right to receive such economic benefit is firmly with the organization that
means there is no reasonable uncertainty as to the ownership of intangible asset. The recognition
criteria also includes that the cost of the assets should be measured reliably. The Para 24 of the
standard provides that the intangible assets should be initially measured at cost (Edeigba &
Amenkhienan, 2017). Measurement of intangible assets certainly differs depending on whether
the assets has been acquired separately or the asset has been acquired in a business combination
or generated internally by an entity.
In case the asset has been acquired separately then the intangible asset is measured as per
the cost method, i.e. the payment made to acquire the intangible asset separately. In case of
acquisition of intangible asset in a business combination then the intangible asset is measured by
subtracting the net asset acquired in business combination from the amount of purchase
consideration (Cahan, 2016). In case the intangible asset is generated internally by an entity then
till the stage of development of the asset no expenditure incurred on generation of intangible
asset shall be recognized as intangible asset. Thus, only the expenditures incurred in the
development stage of the asset shall be considered to measure the intangible asset generated
internally by an entity (André et al., 2018).
Answer to Question ii:
According to the NZ IAS 38, until the recognition criterions of intangible assets are not
satisfied the expenditures incurred for generation of intangible asset shall be expended. Thus, the

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expenditures, which are incurred after the satisfaction of recognition criterions in respect of
intangible assets, shall be considered to measure the intangible asset (Contractor et al., 2016).
In this case, it has been specifically said that Two Rocks Limited was convinced about
the development of the product only at the end of April thus, all the expenditures incurred until
the month of April 2017 from January 2017 shall be expended and subsequent expenditures
incurred on development of the product shall be capitalized (Ahmed Haji & Mohd Ghazali,
2018).
Amount to be expended in the books of accounts (January, 2017 to April, 2017)
Particulars Amount
($)
Amount
($)
Salaries paid to engineers of the company 145000
Amount spent for developing a new filter system 165000
Amount spent on revision of filtration process 135000
Total 445000
Amount to be capitalized as intangible assets in the books of accounts (May, 2017 to
June, 2017)
Particulars Amount
($)
Amount
($)
Cost incurred in May 65000

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Cost incurred for marketing including foods and beverages 25000
Refining cost of filtration process 45000
Total 135000
Statement showing calculation of intangible Assets
Particulars Amount ($) Amount ($)
Acquired fibre division of Sand Hill Ltd. 330000
Less: Tangible assets acquired
Equipment 180000
Inventories 60000
240000
The excess amount paid over and above the net tangible assets 90000
The excess amount to be segregated in:
Amount to be recognized as Patent 50000
Amount to be recognized as brand name 40000
90000

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Reference
Ahmed Haji, A., & Mohd Ghazali, N. A. (2018). The role of intangible assets and liabilities in
firm performance: empirical evidence. Journal of Applied Accounting Research, (just-
accepted), 00-00.
André, P., Dionysiou, D., & 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), 707-725.
Benson, K., Clarkson, P. M., Smith, T., & Tutticci, I. (2015). A review of accounting research in
the Asia Pacific region. Australian Journal of Management, 40(1), 36-88.
Biondi, L., & Lapsley, I. (2014). Accounting, transparency and governance: the heritage assets
problem. Qualitative Research in Accounting & Management, 11(2), 146-164.
Cahan, S. (2016). Consequences of IFRS for capital markets, managers, auditors and standard‐
setters: an introduction. Accounting & Finance, 56(1), 5-8.
Contractor, F., Yang, Y., & Gaur, A. S. (2016). Firm-specific intangible assets and subsidiary
profitability: The moderating role of distance, ownership strategy and subsidiary
experience. Journal of World Business, 51(6), 950-964.
Edeigba, J., & Amenkhienan, F. (2017). The Influence of IFRS Adoption on Corporate
Transparency and Accountability: Evidence from New Zealand. Australasian
Accounting, Business and Finance Journal, 11(3), 3-19.