INTANGIBLE ASSETS

Accounting for Intangibles

Accounting for Intangibles

Introduction

With the increase in competition worldwide entities have started utilizing their resources for acquiring, developing and maintaining intangible assets such as enhancing their technical knowledge, implementing and designing new processes to carry out business activities and for improvement of system, along with that improving their market knowledge to target customers effectively and meeting their expectations efficiently and consequently making efforts to develop trademarks that may include brand names and publishing titles, this will enhance the capability of businesses to develop strong customer relationship and maintain customer loyalty. These assets may not subsequently have physical substance yet they provide benefits to the company (Nikolai, Bazley & Jones, 2009, P. 567).

Intangible assets are recorded in the financial statements much as the tangible assets, likewise depreciable assets; cost of intangibles is systematically allocated to expense during its useful life, the process of allocating this cost of intangible assets is referred to as amortization. Two main characteristics of intangibles are that they lack physical substance unlike tangible assets, value of these assets is derived from the rights and privileges it gives the company to use them. And they cannot be classified as financial instruments such as bank deposits, accounts receivable and investment in bonds, all these assets lack physical substance yet these are financial instruments and are not categorized as intangibles (Albrecht et. al, 2010, Pp. 402-404).

Moreover, an item can be classified as an intangible if it is identifiable and will have future economic benefits. If an item does not meet this standard then resources are devoted to acquire such an asset which can be classified as an expense as it occurs. However, it is significant for companies to classify these assets, as certain intangibles have limited useful life and some may have infinite useful life. Thus, intangibles that with limited life are subject to being amortized on the other hand intangibles with unlimited life are not amortized (Clark & Schroeder, 2011, P. 340).

Discussion

To understand the treatment of intangibles and AASB accounting requirements of intangibles, it is essential to develop understanding of what AASB is, it is the approved Australian Accounting Standard Board, and the board is responsible for developing, issuing and maintaining Australian accounting standards and related pronouncements. Intangibles assets can be classified as identifiable or unidentifiable which are either internally generated or externally generated. These assets do not have monetary value or any physical substance therefore the issue for measuring the accurate value for these assets is often complex for entities (www.cpaaustralia.com.au).

AASB Requirements for Intangibles

AASB presents a complete framework for presenting and preparing company's financial statements. According to AASB any resource that can be controlled by business entity as a result of past business transaction and will reap benefits for the company in the future is classified as an asset. This asset can only be recognized at the company's balance sheet when it has been assured that it will result in future economic benefits to the entity and it has a cost or value that ...