The following paper under the title 'The Main Feature of Australian Financial Accounting' is a great example of a financial and accounting term paper. AASB 138 recognized intangible assets when its potential monetary benefit will be received by the entity and the value of the asset can be determined reliably. When the software is purchased externally this recognition criterion is met. The standard also highlights the requirements that necessary in order for the internally generated software to be documented (Picker et al, 2009). If the pattern is determinable on the future economical consumption, the software program is amortized as per the identified pattern.
On the circumstances that patterns are not identifiable, the straight-line method of depreciation is used. Entities are allowed by AASB 138 to classify their intangible asset as either indefinite or finite in their useful life (Deegan 2010, p. 937). AASB has been changed to adopt IAASB. The AASB board decided to proceed to give the sector a neutral standard. Their principles are applicable to both non-profit which include public sector and profit entities (Deegan 2010, p. 937). IAASB is the foundation to which AASB adds materials that give details of the coverage and their application standards in the Australian environment.
The board intends to make additions that broaden the content on the areas that are not adequately addressed by IAASB and domestic, regulatory, and other issues (Deegan 2010, p. 938). The AASB standards are equivalent to IFRSs which are issued by IAASB 1-99. The standards also correspond to the IAS series. The main feature of the AASB standard is its application to the yearly reporting period starting from or after the beginning of first January 2005.
The main objective of AASB is the promotion of the comparability of the financial report of Australia entities. Consultant fee $100,000 on of-shelf software together with a development fee of $50000 and pilot test fee of $4,00 qualify to be recorded as intangible asset in the books of account. The total cost of $154, 000 fall within the criteria of capitalizing. Tex limited can capitalize on this cost under intangible assets. However, it also important to bring into the attention of Tex limited, that the consultant fee, development fee, and testing fee do not qualify to be plant, equipment, and plant.
At that instance when software implementation fail it was prudent for Tex ltd to report the cost as an expense but since the project proved later to be viable Tex limited can report it an as intangible asset. The upgrading cost worth $100,000, for the all organization qualifies to be treated as plant, equipment or plant. This is because the upgrading relates to hardware. The total cost of $134,000, salaries for software developing staff, testing of the project, installation, and training of staff is recommendable to Tex limited to capitalize.
They meet the criteria of capitalizing as an intangible asset. The depreciation cost of $13,000, promotion on the staff $3,000, and customer promotion $20,000 should be expensed. AASB 138 on intangible assets specifically discloses the software as one of the intangible assets which are an Australian Equivalent International Financial reporting standard (AIFRS). This came to effect after January 2005 and it is being used in every financial year. AASB 138 is a general requirement that does not comprehensively deal with intangible assets.
It is a replacement of six currently Australian standards. These standards include the AASB 1041 revolution of short-term asset, AAS 4 depreciation, AAS 10 the amount that can be recovered of short-term asset, AAS 21 acquisition of an asset, AAS 13 accounting for development and research costs and AAS 18 accounting for goodwill (Deegan 2010, p. 937). Some of the universal principals which are in the accounting statement concept (SAC) 4 are also covered by AASB 138. The general requirement and main differences is an outline in the existing AASB and AAS standard concerning intangible asset and new requirement of AASB 138.
The ACT held software as the only intangible asset which the standard has a major impact on. This policy summary results in the emphasis on the application of the standards to the software. The new requirement of AASB 138 defines an intangible asset as a non-monetary asset that has no physical substance (Picker et al, 2009). Software falls in this category. The standard requires that software be included as property, plant, and equipment instead of intangible assets.
The software is taken to be integral and relates to hardware. On the other hand, most ACT government agencies classify software as an asset that cannot be identified physically and not as a fixed asset. AASB 138 recognized intangible assets when its potential monetary benefit will be received by the entity and the value of the asset can be determined reliably (Picker et al, 2009).
Deegan C, 2010, Australian Financial Accounting, 6ed, McGraw-Hill Australia, Sydney.
Deegan C, 2007, Australian Financial Accounting, 5ed, McGraw-Hill Australia, Sydney.
Eugene F & Philip R, 2009, Intermediate Financial Management, Cengage Learning,
Picker et al, 2009, Australia Accounting Standards, John Wiley
and Son, Sydney.
Stefan G, 2007, the Development of the Australian Accounting Standards after the End of the
G4+1, GRIN Verlag, Sydney.