Accounting intangible asset - Essay Example

ACCOUNTING FOR INTANGIBLE ASSETS A CREEPY CONCEPT: Unlike other accounting procedures which nevertheless aren't so simple either the accountingfor the intangible can prove to be a gruesome activity. The most important reason as the term "intangible" might itself suggest that quantifying such an asset would literally mean rationale treatment to the asset which means it would be complete subjective of one to classify them and then treat it on its own discretion or according to organizational accounting rules and policies as to even disclose and recognize its intangible assets which can be internally generated or bought. Similarly, just as assets can be quantified and expensed by some definite amount, such can not be applied to the case of intangible. Therefore, it can be just as difficult for the regulatory authorities to come up with a standard which to act as a guideline specially in the case of accounting where considerable discretionary authority lies with the concerned organization. Organizations have over a long period of time argued over their respective accounting policies. To give a clearer picture of it all, let us just touch by as to what actually are intangibles. These might include franchises, brand names, patents and trademarks, knowledge asset. However all just mentioned are just part of one the category of intangibles and which might cause lesser problems then much more abstract category of it that is to say "Goodwill" or the difference of the price paid for business and the valuation for of all its assets less all its liabilities. RESEARCH'S VIEW OR THE CONCEPTUAL FRAMEWORK: As clearly specified in the opening the intangibles can be classified as the (i) Identifiable (ii) Non-Identifiable They can be further recognized or go unrecognized as per accounting policies of the concerned organization. REGULATIONS: The most prominent regulations which were able to govern the intangible accounting for sometime was AAS 18 ASRB 1013. Moreover, from 1985 to 1989 Goodwill Accounting Policies were found in the following manifestation. Goodwill was capitalized and amortization was done systematically that is to say Systematic amortization. Goodwill capitalized and amortized. Amortization as an extraordinary item with Goodwill capitalization. Goodwill capitalized with as an asset and no amortization. Rather than amortizing as dangling debt, net goodwill obtained as cumulative deduction from shareholder's equity. A lump sum writing off of Goodwill as an extraordinary item . A lump sum writing off Goodwill against retained earnings and reserves Completely writing off Goodwill as a lump sum in the profit and loss account. Combination of both systematic amortizing goodwill together with a lump sum extraordinary write-off. Combination of both systematic amortizing goodwill together with a lump sum abnormal write off is also made. As taken earlier the two accounting standards AAS 18 and ASRB 1013 has certain implications as to how or to the extent to which the above mentioned categories can be applied as standard operating procedures for intangible assets. The regulations has allowed for allowed for write off only under certain conditions. If on acquisition the amount so acquired may be charged to profit or loss for that matter provided that it does not include goodwill. EMPIRICAL RESEARCH INSIGHTS: Evidence are clear as to the fact that from a period of 1985 to 1989 companies have increasing adopted to capitalization and amortization policy. Similarly, over the same period there has been noticeable and considerable decrease in accounting policy diversity as evidence suggest. Trademarks and trade names have had the greatest increase in the recoginition as identifiable intangibles. Despite the increase in companies adopting the policy of capitalization without any amortization, there has been a relative increase in the number of companies adopting the policy of lump sum extraordinary writoff. A smaller percentage has also adopted to a mixed policy as well. The following categories can be used to summarizes the accounting principle 1. Capitalization and systematic amortization of identifiable intangibles. 2. No-Systematic Amortization and capitalization of identifiable intangibles. 3. Only capitalization and non amortization. 4. Combination of mixed classes of amortization and non amortization. 5. Writing off of identifiable intangibles in a lump sum as an extraordinary item. LIKELY FUTURE DEVELOPMENTS: Seemingly the probable future developments in respect of what is coming up the intangible assets as has also already been proposed, are: To bring to account purchased identifiable intangible and classify by type by having separate minimum disclosure. For internally generated intangibles the same applies as above and stated at the cost at which they can be aquired in the normal course of business as may be determined by valuation Recognized identifiable intangibles are to be amortized over a finite period of time. For a financial position to be completely presentation of such assets the two conditions as to the fact that the future benefits will eventuate and should have a cost. In addition to the above developments the Accounting standard board of the United Kingdom also proposed standard as: Purchased good will should be capitalized and the balance sheet should have it classified. Further this standard recognizes that goodwill and identified intangible could have uncertain or indefinite life. BIBLIOGRAPHY Keith Alfredson(July 2001) Accounting identifiable intangibles-An unfinished standard setting task. Australian Accounting Review. Edmund Jenkins and Wayne Upton(July 2001) Internally generated intangible assets: Framing the discussion. Graeme Wines and Collins Ferguson(1993) An empirical investigation of accounting methods for goodwill and identifiable intangible assets;1985 to 1989. ABACUS. Wyatt, Matolcsy and Stokes(July 2001) Capitalization of intangibles-A review of current practice and regulatory framework. Read More