Intangible Asset

Topics: Balance sheet, Asset, Generally Accepted Accounting Principles Pages: 5 (1948 words) Published: January 7, 2013
The purpose of this study is to examine several issues when dealing with intangible assets. By means secondary research, relevant evidence from many sources was selected, evaluated and organized into three main points, which are research and development cost, brand valuation and the risk of intangible asset in financial statement in relation with market and book value. The evidence includes statistical data and expert opinion. The research results that intangible assets give a significant impact to the company if they are not measuring appropriately based on the accounting standards. Based on these findings, it is argued that intangible asset would affect company’s performance if there are misjudgments in the valuing of these assets.

Financial statement has a significant role in businesses system in due to transparency of company’s financial position in the businesses environment. The purpose of financial report is to give important information about any changes in company’s performance that is useful for a wide range of users in making decision making in order to make investment in that particular company. According to FASB that is stated in Canibano, Garcia-Ayuso, & Sanchez (2000, p.102), financial statement should provide a useful information that will benefit to any potential investors and creditors to make further investment, credit and similar decision. Therefore, any event that will affect company’s performance either present or future should be presented in this annual report. During last 20 years, expansion in technology, economic system and people knowledge have brought many changes in businesses environment which increase the use of media due to more competition between companies and company’s feasibility in the future. Due all these changes as stated in Canibano, Garcia-Ayuso, & Sanchez (2000, p.102) the resource of wealth and future economic benefit is not from material production or tangible asset but from investing and management of intangible asset. As defined in paragraph 8 of AASB 138 that is noted in Picker et al (2006, p. 313) intangible asset is “an identifiable non monetary asset without physical substance”. There are two main forms of intangible asset, first legal intangible such as trademark, patent, brand and other thing that defendable in the court and the second one is competitive intangible such as knowledge activities and other activities that have a direct impact and effectiveness to company’s performance (Wikipedia, 2010, accessed 15/05/10). Intangible asset is one of accounts that should present in the financial statement; this is however, by putting intangible assets in the financial statement, this report would be less informative because they raise the difficulties of estimation of market value and book value which can affect the company’s performance. It can be argued that there are some issues that arise when dealing with internally generated assets. Therefore, in this essay the author will discuss possible issues that can arise in intangible asset such as research and development cost, brand valuation and the risk of intangible assets in financial report in relation with market and book value. R&D cost

In order to expand intangible asset, companies need to spend more money in research and development (R&D) due to market competition to get more profit. This expense is relatively expensive and continuous until the firms can find a new finding in intangible asset that can improve company’s performance. This statement is strengthened by Canibano, Garcia-Ayuso, & Sanchez (2000, pp.108-109) argument which states that between R&D and future economic benefit had not been confirmed thoroughly because there were no confirmation that can be found in relation with expanding research and development a new product can lead future improvement in the company’s performance. Changes in the R&D can cause a divergences between profit each year and...

References: Canibano, L, Garcia-Ayuso & Sanchez, P 2000, “Accounting for Intangible: A Literature Review, Journal of Accounting Literature, vol.19, pp.102-130.
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Picker, R, Leo, K, Alfredson, K, Pacter, P & Wise, V 2006, Australian Accounting Standards, John Wiley & Sons, Queensland, Austalia,
Seetharaman, A, Azlan Bin Mohd Nadzir, Z & Gunalan, S 2001, “A Conceptual Study on Brand Valuation”, Journal of Product & Brand Management, vol.10, no.4, pp.243-256.
Sigma Pharmaceuticals Limited 2009, Annual Report 2008-2009, accessed 14/05/2010,
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Tollington, T 1998, “Brands: the asset definition and recognition test, Journal of Product & Brand Management, vol. 7, no. 3, pp. 180-192.
Wikipedia 2010, Intangible Asset, accessed 14/05/2010,
Wrigley, J 2008, “Discussion of ‘What financial and non-financial information on intangibles is value-relevant? A review of the evidence”, Accounting and Business Research, vol.38, no.3, pp.257-260.
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