Discuss the Difficulties Relating to the Recognition and Measurement of Intangibles Generally and of Brands in Particular.

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Q: Discuss the difficulties relating to the recognition and measurement of intangibles generally and of brands in particular. Refer to the example in Enigma plc in your discussion.

According to IAS 38, an intangible asset defines as “an identifiable, non-monetary asset without physical substance” including brand, computer software, patents and copyrights. As this typical asset has no physical substance, it is really difficult to recognize and measure it. This essay mainly aims to explain the difficulties to recognize and measure generally intangible assets especially the brand and some analyze refer to the Enigma example will be shown.

An item cannot be an intangible asset unless it is an asset in the first place, that is to say the intangible assets should meet the definition of the asset based on IASB Conceptual Framework which contains three main criterions: control, future economic benefits and identifiable (Sacui and Predișcan, 2011). Therefore, whether the item meets the three criterions are the first requirements and the difficulties to recognize an intangible asset. Firstly, the identifiable of an asset is that “it is capable of being separate or divided from the entity and sold, transferred, licensed, rented or exchanged” (IAS38). So as the intangible assets, it also should be separable from the entity or other rights and obligations. However, the intangible assets are lack of physical substance, the requirement of “identifiable” is one of the difficulties the entities will meet. Then the accountancy standards require that the company must be able to control the item’s future economic benefits. At last, there must be an expectation of future economics and the intangible assets should be capable of attributing directly or indirectly to future net cash flow (Sacui and Predișcan, 2011). Without selling the intangible asset, it is nearly impossible to determine whether the future cash flow mainly due to the intangible assets or the operating...
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