The accounting treatment of intangibles
• Journal reading by Zeghal& Maaloul(2011)
• “The valuation of intangible assets within the accounting framework raises several problems relating to their identification, measurement and control” (p.262)
• “Under current accounting standards, most intangible investments are to be expensed when incurred” (p. 263)
“Lack of accounting recognition on intangible investments as assets” (p. 263)
• “serious accounting problems could arise when the asset is internally generated by the company” (p. 263)
• “the accounting standards impose, for the accounting of intangibles, conditions that are so restrictive that only a few appear in the assets” (p.264)
• We are only interested in how the IASB looks at intangibles (the standards issued by IASB are adopted by Australia).
• DO NOT use FASB definitions or rulings as they ARE NOT the IASB/Australian accounting standard.
• Read the Australian accounting standard AASB138 Intangibles (equivalent to IAS 38)
Identifiability and Control are important aspects to be met in definition, but both are difficult to determine or to argue that they can be met
• Secondly, recognition criteria are problematic for intangibles. How do we obtain a reliable measure? If acquired separately or in business combination this is not difficult
• To be able to measure reliably “presents great difficulty in the case of internally generated assets such as software, trademarks, patents…the results of research and development activity” (p.264)
• “The cases where expenses related to the creation of intangible assets could appear in the balance sheet are scarce” (p. 264)
• The conservatism principle that underlies much of accounting “justifies the immediate expensing of intangible investments” (p.265) • No further part of the journal is particularly relevant to your in?class essay.
The term “intangible asset” is related to the valuation of a business. Literarily the word “intangible” denotes that, which has no physical form. A business is formed of mixed assets, basically divided into two main section – tangible asset and intangible asset. A tangible asset is defined to have a physical shape, like building, equipment, furniture, electronic gadgets, and other physical resources. It is tangible because you are assured of its price value by exchanging money. There are some assets which are both tangible and intangible in nature. Like – property, plan, and equipment (PPE). Whereas, the receivable loan cannot be considered as the intangible though it is lack of monetary form. Some intangible assets are identified with an indefinite life. For example, goodwill and trademark. It is palpable in nature. Goodwill is an ideal example of an intangible asset with indefinite lifetime, as the trademark can be purchased whereas goodwill cannot be shared between companies.
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