Question

Q4

AASB 138 Intangible Assets AASB 137 Provisions, Contingent Liabilities and Contingent Assets AASB 141 Agriculture

Choose ONE ONLY of the Accounting Standards shown above and answer the following questions.

a) Which Accounting Standard did you choose to answer Question 4? (Please note that NO marks will be awarded for question 4 if part a) is not answered or if you choose a Standard that is not one of the Standards listed above.)

b) Describe the measurement base or bases used in the Standard.

c) Explain the role of professional judgement used in the application of the measurement principles used in the Standard. Illustrate your answer with examples.

d) How is objectivity enhanced in the application of the Standard? In answering this question you may draw on principles beyond the selected Standard.

Answer 1

Answer

A) AASB 138 Intangible Assets

B) The Standard AASB 138 Intangible Assets describes the accounting treatment of Intangible Assets in books of accounts.

This standards describes the accounting treatment of Intangible Assets for the following.

1. Initial recognition of Intangible Assets

2. Depreciation methods

3. Additon or deletion of value of Intangible Assets

4. Written off of Intangible Assets.

This standard gives accounting treatment of intangible assets in detailed manner

1.Initial recognition of intagible assets

All the intangible assets should be recognized in the books of accounts at aquisition cost including any anciliary expenses to aquire the asset (legal fee, license fee, taxes etc.)

2. Depreciation methods

The intangible assets should be depreciated every year either on stright line basis or written down basis depend of the estimated useful life and retuns from the intagible assets.

3. Additon or deletion of value of Intangible Assets

Any additional cost which enhances the useful life of the asset or returns from the assets should be capitalized by adding that cost to the book value of the intangible asset.

4. Written off of Intangible Assets.

If life of the asset becomes zero or there is no inflow of cash from the intangible asset then the value of the intangible assets in the books of accounts should be written off and charged to profit and loss account.

C) Professional judgement is required in using the principles of this standard.

The professional judgement is required for the following

1. Initial recognition of intangible asset (Calculation of cost of the asset)

2. Choosing of suitable depreciation method, life of the asset, scrap value

3. Written off of intangible assets

Example: If an asset cost $500000 useful lif of 4 years which will yield inflow of cash into the business year 1: $200000 year 2: $150000 year 3: $100000 year 4: $50000.

In the present case the inflow of cash into the business is reducing and not equal for all years. Hence professional judgement is required in this case to choose the appropriate one. Hence written down method is suitable in the present case.

D) The objectivity in the application of these principle while accounting the intangible assets will be enhanced by choosing most appropriate esimates and using of professional judgement. If any method is over riding this standard in a particular application of principle then the most appropriate principle should be used which is accepted by the general accounting principles and by statutory bodies.

The objectivity will enhance if any other standard gives more cleary appropriate accounting principle for any application of principle for intangible assets, by following the statutory requirements and other laws and regulations of the territory.