Accounting Standards and Principles for Finance†MyAssignmenthelp

Question: Discuss about theAccounting Standards and Principles for Finance. Answer: Introduction Australian accounting standard has provided AASB 138 which provides the criteria and basis for recording intangible assets in financial statements and various aspects for the disclosure of the same. A detailed discussion has been included to provide the information about the measurement and recognition aspects of accounting standard. To explain the aspect in a better manner the financial statements of Genera bio-systems limited has been taken to provide the information about the disclosure in the statements about the same. It is necessary to disclose the information about the acquisition and development of intangible assets by the company. Overall the assignment will provide the overall aspects attached with the disclosure and recognition of the intangible assets. Intangible assets can be explained as the assets which the company acquire or develop for its business which cant be touched but it provides economic benefit to the entity throughout its economic life to the entity through improved revenues and also provides competitive aspect from other companies. But the recognition of intangible assets is made only when it fulfills the criteria and standard for the same. It is also very important to know the method for calculating the same in the financial statements and specific disclosures to be made. The standard for intangible assets AASB 138 applies for an asset only when it is not to be provided in other standard specifically provided to record the same. The standard also does not apply where the assets are for recording financial instruments which are specifically provided in AASB 132. The standard also does not apply to the activities related to the exploration and evaluation of mineral resources, oil and natural gas and similar non-regenerative resources (Bond, et. al., 2016). Intangible assets include expenditure made on scientific or technical knowledge by the entity like computer software, patents, copyrights, rights, licenses etc. Only those transactions are recorded as intangible assets when and only when they fulfill the recognition criteria prescribed by the standard. An intangible asset is recognized only if the following condition is met by the asset: Probable future economic benefits expected that are attributable to the asset will flow to the entity; and A reliable cost can be measured. Measurement of intangible asset by the entity is made on the basis of the probability of expected future economic benefit. Future economic benefit can be ascertained by making reasonable and supportable assumption which can be ascertained by estimate by management attached with the useful life of asset. Intangible asset should be initially measured at cost incurred in acquisition or development. The cost incurred in acquiring the intangible asset should be added to the cost of the main asset. The cost such as purchase price along with import duties, non refundable taxes or any directly attributable cost of preparing the asset for its intended use should be included in the cost of intangible asset. Recognition of cost of intangible asset ceases when the asset is capable of operating normally but it is not in use by the entity in actual. This means that only the cost which is incurred till the asset is ready to use should be included in the cost of asset. Once the asset is ready to use the cost incurred afterwards should not be included. Analyzing criteria for recognition, a review of listed company regarding the disclosure requirement has been made. Statement of accounts of Genera Bio-systems limited have been reviewed in order to disclose the requirements related to intangible assets. Company recognizes its intangible assets on the concept as specified by the Australian accounting standard board (AASB 138). As disclosed by the financial statement of Genera Bio-systems Limited for intangible assets acquired as a part of business combination, other than goodwill should be initially measured at fair value as on the date of acquisition. All the cost related to acquisition of the asset is included in the cost of the asset and shown in financial statement. Company has recognized the value of intangible asset initially at cost. Company classifies the intangible assets in its books as per its useful life. Asset having finite life period are subsequently measured at cost less amortization and impairment loss recognized over a period of time. Asset having indefinite useful life are not amortized and is measured subsequently valued at cost less impairment loss. The value of intangible assets is reviewed at regular interval. Method of annual review of intangible asset is used by the company in order to check the impairment or revaluation of intangibles hold by the company. This helps the company to know the actual valuation of intangible assets in possession by the company from which future economic benefit will flow to the entity. All the changes which are made in the value of intangibles are recognized in the books and statement of accounts is made on prospective basis (Castilla-Polo, et. al., 2016). Changes made in the amortization method are also calculated on prospective or by changing the period for amortization. Company also follows the recognition requirement related to the research cost as specified by the standard which says that recognition cost should be recognized as an expense in the statement of accounts. Specifying about the development expenses, entity specifies that it is capitalized only when the intangibles fulfill the feasibility test. When the financial study specifies that the project will be completed and will be able to generate future economic benefit to the entity (Russell, 2016). Also it is to be ascertained that the intangible will be able to measure reliably. Company uses appropriate method for recognizing the intangible asset in the financial statement. The useful period of the intangible asset taken as twelve years is made on the basis of the feasibility study conducted by the entity. The decision taken by the entity regarding the recognition of the intangibles should have connection with the useful life of the asset and the period over which the future economic benefit can be taken. The method used by the company for recognition and measurement of intangibles should be adopted after study otherwise the asset will be carried in the financial statement without having any value as compared to the market value. Company discloses the method adopted for valuation of its intangibles which gives transparency towards the stakeholders. It is very important to disclose the method of valuation and the useful period of the intangibles along with the basis on which the useful period has been ascertained (Yao, et. al., 2015). Company uses the recognition criteria as specified by the accounting standard board. Along with the method adopted by the entity it also discloses the value of intangibles under proper heading in the statements formulated by the company. Intangibles held by company are appropriately disclosed under non-current assets. Also inflow and outflow related to the purchases and sale of intangibles have been appropriately dealt in the cash flow statement. (Hunter, L., et. al., 2012) It is very useful for the company to recognize the useful life of the intangibles at regular interval on the reporting date which helps the company in recognizing the actual value of the intangibles. All the conditions attached with the intangibles are properly evaluated and impairment loss is recognized on the same. All the estimates and assumptions are ascertained in advance and the value of the same is accounted in the books in order to bring the asset in books at right value (Sinclair Keller, 2017). It is also useful for the company to value impairment loss on the intangibles so as to know the actual value of the asset as per market. These estimations are only used for the asset having finite useful life and not for the intangibles having infinite life as they are not amortized. The proper measurement and recognition criteria of intangibles is very important as it helps the company to bring the assets as per the norms and standard specified by the board and also the statement of accounts provide true and fair picture of the intangibles (Su Wells, 2015). Conclusion From the above discussion it can be ascertained that it is important for the entity to recognize and measure the value of intangibles as per the standard specified by the board. The standard provides the basis for measuring the value of intangibles in such a manner which helps in recognizing the true value of the intangibles in the statement of accounts. Reviewing the statement of accounts of Australian listed company Genera Bio-systems limited it was ascertained that the company follows the norms and provisions as specified by the board under AASB 138. All the estimates and assumptions are made on the basis of the useful life of the asset and on the basis of expected future benefit from the intangibles. (Lhaopadchan, S., 2010) It can be said that the usefulness of the intangibles in the statement is enhanced if the respective standards are followed as all the value attached with the asset is properly disclosed as per the specification of the board. Intangible asset are important to the entity and hence its valuation should be made with utmost care so that actual value can be ascertained for depicting the true and fair position of the entity. 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. Castilla-Polo, F. And Gallardo-Vzquez, D., 2016. The Main Topics Of Research On Disclosures Of Intangible Assets: A Critical Review. Accounting, Auditing Accountability Journal, 29(2), Pp.323-356. Hunter, L., Webster, E. and Wyatt, A., 2012. Accounting for expenditure on intangibles. Abacus, 48(1), pp.104-145. Lhaopadchan, S., 2010. Fair value accounting and intangible assets: Goodwill impairment and managerial choice. Journal of Financial Regulation and Compliance, 18(2), pp.120-130. Russell, M., 2016. The Valuation Of Pharmaceutical Intangibles. Journal Of Intellectual Capital, 17(3), Pp.484-506. Sinclair, R. And Keller, K.L., 2017. Brand Value, Accounting Standards, And Mergers And Acquisitions:The Moribund Effect. Journal Of Brand Management, 24(2), Pp.178-192. Su, W.H. And Wells, P., 2015. The Association Of Identifiable Intangible Assets Acquired And Recognised In Business Acquisitions With Postacquisition Firm Performance. Accounting Finance, 55(4), Pp.1171-1199. 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.