Question

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

a	The chosen standard is AASB 138, which provides guidance on various aspects of Accounting for Intangible assets.
b	Accounting for an intangible asset depends on how it is acquired. 1. Intangible Assets Purchased in Situations Other Than Business Combinations: Exmples would be buying a patent, franchise or trademarks, etc. These are accounted for by recording them at their fair value when acquired, which is assumed to be equivalent to the purchase price. If several intangible assets are acquired as part of a group, the purchase price is allocated to each asset on the basis of its fair value. Periodically, these assets are amortized based on useful life or validity period (similar to depreciation for tangible assets). 2. Intangible assets developed internally: The development of intangible assets internally is categorised into research phase and development phase. Expenditure incurred during the research phase should be expensed. Expenditure in development phase can be capitalized if the entity is certain that economic benefits will accrue and can be realized. (Development phase is when technical feasibility is established and entity is certain that active market exists for the product. 3. Intangible assets in business combination: When a company acquires assets, it allocates the purchase price to all the assets obtained based on fair value. If the purhcase price is greater than asset value obtained, the difference is recognized as Goodwill under Intangible assets in the Balance sheet.
c	In case of Accounting for Intangible assets, the judgement is required in following aspects: 1. In determining the useful life of the asset 2. In accurately calculating the purchase price (especially in case of internally generated asset) 3. In relation to impairment testing 4. Necessity in change of amortization method (based on sales made in case of franchise or more appropriate basis)
d	Objectivity is enhanced by making diclosures in the financial statements about: 1. The methods used in determining the fair value of asset at the time of recognition 2. Justification for useful life determined 3. Basis of impairment testing 4. Justification for any changes in accounting policies related to intangible assets.