AASB 138 On Intangible Assets Focuses On The Treatment Of Intangible

Question: Discuss about the AASB 138 On Intangible Assets Focuses On The Treatment Of Intangible Assets Answer: Introduction The main objective of AASB 138 on intangible assets is prescribing the treatment for the intangible assets that are specifically not dealt in any other standard. It requires a company to identify the intangible assets only if the criteria are met. Further, it also specifies in what way the carrying amount of the intangible asset is measured and the requirement of the disclosures regarding the intangible asset (Ji and Lu 2014). All the companies frequently incur the liabilities and spend their resources for the development, acquisition, enhancement or maintenance of the intangible resources like technical or scientific knowledge, implementation and design of new systems or process, market knowledge, trademarks and intellectual property. Various examples for these items are import quotas, supplier or customer relationship, market share, marketing rights, customer loyalty, patent, computer software and copyrights. However, as per Para 9 of AASB 138, all the assets do not qualify under t he intangible asset definition (Yao, Percy and Hu 2015). However, when the item does not qualified to be recognized under the standard, the expenses related to acquiring the asset or generating it internally is identified at the time when incurred. However, when the item is acquired it will be regarded as the part of goodwill that is identified at the date of acquisition. Measurement and recognition The recognition of any item as intangible asset needs an organization to determine that item satisfies the following conditions It meets the criteria of recognition as per Para 21-23 of AASB 138 It meets the intangible assets definition as per Para 8-17 of AASB 138 The above mentioned requirement is applicable to the cost that is initially incurred for acquiring or generating internally the intangible asset and the amount incurred to make the addition or replace the asset or service the asset. Te Para 25-32 of AASB 138 deals with application of recognition criteria for acquiring the intangible asset separately, while Para 33-43 deals with the application to the intangible assets that are acquired under the business combination. Further, Para 44 of the standard deals with initial measurement of the intangible assets while Para 48-50 deals with treatment for the goodwill that is generated internally. Moreover, Para 51-67 of the standard deals with measurement and initial recognition of the intangible assets that is internally generated (Hu, Percy and Yao 2015). As per Para 21 of AASB 138 the asset shall be recognized as intangible asset if and only if The assets cost can be reliably measured It is expected that the future economic value with regards to the asset will inflow to the company. As per Para 22 of the standard an organization shall analyse the probability of the forecasted future economic benefits through the supportable and reasonable assumptions that will represent the best estimation of the management with regard to the economic condition set that may exist over the assets useful life. Further, Para 23 states that an organization uses the judgement for for assessing the certainty level that is attached with the inflow of the future economic advantages contributable to assets usages based on the available evidence while making the initial recognition and gives greater weight age to the external evidence. As per Para 24 of AASB 138 the intangible asset initially must be recognized at cost. Notwithstanding anything to Para 24, with respect to the Not-for-profit organization, where the asset acquired for no-cost or for the nominal cost, the cost is the fair value on the acquisition date. Goodwill generated internally As per Para 48 of AASB 138, the goodwill that is internally generated must not be identified as the asset. In some of the instances, the expenses incurred for generating the future economic advantages but do not result into the generation of intangible asset that satisfy the recognition criteria as per the standard. Such expenses are generally described as contributable to the goodwill that is internally generated. Further, the goodwill that is generated internally will not be identified as asset as it is not the identifiable resource that is the asset cannot be separated or it does not arise from the legal or contractual rights. The variances among the carrying amount and the fair values of the identifiable net asset at any point of time may capture the wide range of the factors that will impact the entitys fair value (Bond, Govendir and Wells 2016). However, the differences do not specify the intangible assets cost that is controlled by the organization. Telstra Corporation Ltd. Telstra is the Australian media and telecommunications company that operates and builds the telecommunication network and markets the mobile, voice, pay television, internet access and other services and products related to entertainment (Telstra.com.au 2017). Treatment of intangible asset by Telstra Corporation Looking at the annual report of Telstra Corporation Ltd. for the year ended 2016, it is recognized that the goodwill acquired under the business combination is measured at the cost. This cost represents excess of payment towards business combination over fair value of identifiable asset on the date of acquisition (Bond, Govendir and Wells 2016). Further, the goodwill was not amortised, however, it was tested for the purpose of impairment on annual basis or while the impairment indication is there. Further, the intangible assets includes the assets that are internally generated particularly the costs related to development of IT incurred for build, design and testing the improved or new systems and products related to IT. The costs related to research are spend while incurred and the external direct cost related to consumption of services and material, costs associated with payroll for the employees and borrowing cost directly contributable to qualifying asset shall be capitalised (St eenkamp et al. 2016). However, the intangible assets that are acquired through separate acquisition or through business combination are recorded at the fair values on the acquisition date and are identified separately from the goodwill (Telstra.com.au 2017). Impairment of intangible assets The company compares the recoverable amount and the carrying amount of CGU for the impairment assessment through the calculation of value in use (VIU). The calculations of VIU uses the major assumptions like the forecasts of cash flow, terminal rate of growth and the rate of discounts (Russell 2017). Conclusion From the above discussion it is concluded that any organization shall disclose the details related to the intangible assets, its measurement and recognition. The company must disclose the useful lives of the asset that is whether the life is definite or infinite. Further, the company shall disclose the method of amortisation used for the intangible assets that has finite life. The company shall disclose the description, remaining amortisation period and carrying amount of the particular intangible asset that will be material for the financial report of the organization. Further, the organization shall state the factors that plays significant role for determination of the fact that the asset has indefinite period of useful life. References Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.Accounting Finance,56(1), pp.259-288. Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairment decisions by Australian firms and whether this was impacted by AASB 136. Hu, F., Percy, M. and Yao, D., 2015. Asset revaluations and earnings management: Evidence from Australian companies.Corporate Ownership and Control,13(1), pp.930-939. Ji, X.D. and Lu, W., 2014. The value relevance and reliability of intangible assets: Evidence from Australia before and after adopting IFRS.Asian Review of Accounting,22(3), pp.182-216. Russell, M., 2014. Capitalization of intangible assets and firm performance. Russell, M., 2017. Management incentives to recognise intangible assets.Accounting Finance,57(S1), pp.211-234. Steenkamp, N., Steenkamp, N., Steenkamp, S. and Steenkamp, S., 2016. AASB 138: catalyst for managerial decisions reducing RD spending?.Journal of Financial Reporting and Accounting,14(1), pp.116-130. Telstra.com.au. 2017. Telstra - mobile phones, prepaid phones, broadband, internet, home phones, business phones. [online] Available at: https://www.telstra.com.au/ [Accessed 20 Sep. 2017]. Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and audit fees: Evidence from Australian companies.Journal of Contemporary Accounting Economics,11(1), pp.31-45.