Week 4 ACC- Intangibles
Definition
Recognition/Treatment
R&D
Issues
Normal Asset
Intangible Asset
“A resource controlled by the entity as a result of past events from which the future economic benefits are expected to flow to the entity.”
AASB138: “An identifiable non-monetary asset without physical substance.” (para 8)
CF doesn't specify differences between assets in terms of identifiability, tangibility and existence of markets
Identifiable
Identifiability creates barriers to recognition in financial statements. It is a test of:
Separability: The capacity of being separated from entity and sold/transferred
Contractural or legal rights: Must demonstrate control over asset
Non-Monetary
Non-financial
Future economic benefits are undeterminable
No determinable amount of future benefits
Without physical substance
Assets don't have to be tangible
existence of intangibles can only be shown by oberving economic transactions
Cannot be touched
Importance of intangibel assets
need support to create value
loses value quickly
don't create value or generate growth on their own
Increasing expenditure on intangibles
Criteria for intangible to be measured
payment would not have been made if future economic benefits weren't expected
Both parties agreed on fair value during transaction
Internally Generated intangibles
Brand building expenditures are expensed
Internal research costs are expensed
Not Capitalized
Exception: Development expenditure
Not seperable
doesn't satisfy RC
Externally Acquired goodwill
Acquired seperatly
Acquired through business combination
Can be capitalized if separable and satisfies RC
Measured at cost
Fair value at acquisition date
Subsequent Measurement
Issue 1: Policy choice
Issue 2: Consumption of future economic benefits
Cost Model: Costs less acc amm and Impairment loss
Revaluation Model: FV less ACC Amor and ACC impairment
Systematic allocation
Impairment
AASB138.72: Choose either if there is an active market
Compromises Purchase price, import duty and other costs in preparing asset for intended use
Needs an active market
Effectively ruled out for intangibles
Must assess useful life of asset
Useful Life
Finite
From the date asset is available for use
Until held for sale
Reflective of FEB or on straight-line
Depreciable amount: Cost less residual value
Research
Development
e.g. activities to attain new knowledge, or searching for new alternatives
Is expensed as can't determine future economic benefit
Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
E.g. Design and testing of a new product design of tools and new tech
Can be capitalized if
Application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
Technical feasability
FEB expected
Adequate resources
Ability to use or sell
intention to complete
Reliable measurement
Controversial issue
Can be difficult to understand
Companies with significant investments can be undervalued (difference between book and market value)
Differential treatment is criticized
Reduced info in financial statement (relevant v faithfully represented)
Disclosure Requirement
amortization rates
Opening and closing amounts for impairments, revaluations and movements in IS
Must distinguish between each class
full details of revaluation models and assumptions used
R&D must disclose aggregate amount of research and development recognized a expense during period