The paper "Alternative for Intangible Assets" is a good example of a finance and accounting coursework. As world economies gradually transform from being manufacturing-based to being service-based, intangible assets continue increasingly becoming important economic resources for many organizations. In addition, intangible assets have increasingly become a significant portion of the organization’ s assets acquired in many transactions. As such, their recognition and subsequent accounting have become increasingly important in today’ s organization unlike before when users did not consider intangible assets as useful. However, the development of an accounting standard for intangible assets has been controversial despite taking a long time with some arguing that there is no one best way of accounting for intangible assets.
Others see it vital for a uniform accounting treatment for intangible assets to be developed so that all organizations can reflect their true value. This paper critically evaluates the current accounting standard on intangible assets reporting with the aim of establishing whether it reflects the true value of intangible assets. In addition, the paper will propose an alternative for intangible assets recognition while establishing whether a company’ s’ management should be given more flexibility in intangible assets reporting. Intangible assets reporting, conceptual framework and accounting theory The IASB conceptual framework defines an asset as a resource that the entity controls resulting from past events and from which future economic benefits flow to the entity.
This implies that for the asset to be recognized, the entity must be in control of it regardless of whether it owns it or not and whether it is an intangible asset or not. In other words, entities should use substance over form where the economic substance of the transaction acquiring the asset takes precedence over its legal aspect in presenting a true and fair value (Accounting simplified. com, 2012).
In addition, the inflow of economic benefits to the entity should be probable while its cost or value should be measured reliably if any asset including intangible assets can be recognized in the financial statements. This is also the criteria advocated for by AASB138, IAS38 among other recognized accounting standards. This being the case, the decision of whether there are anyone best criteria for intangible assets recognition or organizations should be given some freedom in accounting for intangible assets is based on these criteria. While all the accounting standards seem to agree on the recognition criteria for externally acquired intangible assets, it is the internally generated intangibles that have caused recognition problems in most cases, they have been ignored for lack of association between their cost and future revenue, difficulties in the ascertainment of their cost as well as focusing on reliability over relevance in disclosing asset information.
However, due to the increasing proportion of the entity’ s market value attributable to them, they are increasingly being viewed as important and hence the need for recognition. AASB 138: Intangible assets AASB138 is similar to IAS38 in most respects.
The standard defines intangible assets as an identifiable non-monetary asset with no physical substance. Identifiable in this respect implies the asset is either separable and can be sold apart from the other assets of the entity or it arose from contractual or legal rights. This recognition criterion is in addition to there being probable future economic benefits attributable to it which flow from the entity while the costs of the asset can be reliably measured.
AASB further clarifies that intangible assets arise either from self-creation and hence internally generated by the entity, asset exchange, and business combination separate purchase or from a government grant (Aasb. gov. au, 2009). As such, intangible assets that arise from asset exchange are recognized at the fair value of an acquired intangible asset or the asset exchanged whichever is greater. Separately purchased intangible assets’ probability of generating future benefits is considered to be satisfied as rational firms would only acquire assets when they are certain of making future benefits.
As such, they are recognized at their cost price.
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