Acct 3563 Notes

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Week 3: Accounting for Intangible Assets
Introduction
Change from a manufacturing to a “knowledge based” industry
Increase market to book gap
Intangible Assets play a major role
Assets: Definition
* Resource controlled by an entity as a result of past events from which future economic benefits are expected to flow to the entity Assets Recognition Criteria
* Recognition Criteria
* Under AASB Framework (par 89) an asset is to be recognised in the balance sheet only when * It is probable that future economic benefits embodied in the asset will flow to the entity and * The asset posses a cost or other value that can be measured reliably Intangible Assets

* AASB 138 defines intangible assets are identifiable non-monetary assets without physical substance. * Common examples are
* Customer list
* Patents and copyrights – identifiable can be separate from other assets * Broadcasting licenses and mastheads
* Trademarks and brand names
* Research and development

Need to be able to separate from other assets in monetary – then full under financial instruments * Identifiable intangible assets – patents, trademarks, brand names and copyrights * Can be considered identifiable as a specific value can be placed on each asset, and they can be separate identified and sold * Unidentifiable intangible assets – intangible assets that cannot be separately sold, such as loyal customers and established reputation. Cannot be individually measured with acceptable levels of reliability.

Identifiably
* The asset must be:
* Capable of being separated and sold, transferred, licensed, rented or exchanged * Arising from contractual or other legal rights
* Copyrights (identifiable)
* Staff skills, reputation, teamwork, customer relations (unidentifiable) Control
* An entity controls an asset
* If the entity has the power to obtain the future economic benefits * And to restrict the access of others to those benefits
* E.g. legal rights (enforceable in a court of law), copyrights for market and technical knowledge * For normal assets (Recognition criteria) and additional criteria Future Economic Benefits

* Revenue from the sale of products or services
* Cost savings
* Other benefits resulting from the use of the asset by the entity * E.g. use of intellectual property in a production process may reduce future production costs rather then increase future revenues Recognition and Initial Measurement

* Recognition of an intangible asset
* It is probable that the future economic benefits attributable to the asset will flow to the entity * Cost can be measured reliably
* Cant usually recognise self generated intangible assets * Many internally generated intangible assets are specifically precluded from being carried forward as assets regardless of the future economic benefit that might be expected to be generated * E.g. par 54 – no intangible asset arising from research shall be recognised * Cost: include purchase price and cost associated with getting the asset ready for use * Cant initially recognise at an amount other than cost – prohibition on revaluing assets that were not initially recognised at cost. I.e. unrecognised intangibles cant be recognised through revaluation

“An intangible asset shall be measured initially at cost” If cost of asset cannot be reliably measured but FV is determinable, asset cant be recognised under AASB 116 or AASB 138

Recognition and measurement cont…
* Separate Acquisition
* Separately acquired intangible assets always satisfy the recognition criteria * Intangible assets reported in BS at cost
* Cost equals purchase price plus directly attributable costs * Purchase price is measured as the fair value of what is given up by the acquirer in order to acquire the asset * Advertising, staff training and admin expenditures ARE NOT INCLUDED IN COST...
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