Question

Why do you think that internally generated intangible assets should not be carried forward as assets?

Justify your answer.

Answer 1

As per Generaly Accepted Accounting Principles, An Intangible asset should be recognised if and only if :

1. It is almost certain that future econim benefits that are attributable to the asset will flow to the enterprise.

and

2.The cost of asset can be measured reliably.

An internally generated intangible asset is an asset which is not physical . for example Customer's list 'brand name and data etc.

It is difficult to recognise the internally generated intangible asset as an asset because

1.It is difficult to assess whether the identifiable asset will generate the probable future economic benefits.

2.It is difficult to assess the cost an intangible assest reliably, as there are many factors which can have direct impact on the value of asset.

From my point of view the main reason, that accounting standards setters have not required internally generated inatangible asset to arry forward as an asset is that t5he information would probably not be useful for investors and would be cery costly for companies to prepare. For Exapmle if social media companies were required to recognise the data or worforce as an asset into the balance sheet , such information will not be found useful for investors in valuing comapany. Invetors require subjective information and information that gives forward looking estimates. Also such information will not be comparable across the companies.