...COMPANIES 5 Disclosures on Intangible Assets 5 Compliance with AASB 138, Paragraphs 118 to 123 and 126 to 128 6 Differences in Disclosures Between the Two Companies 7 RECOMMENDATIONS 9 LIST OF REFERENCES 10 APPENDICES 11 Appendix A – Cervantes Corporation Ltd. – Consolidated Statement of Financial Position 11 Appendix B – Cervantes Corporation Ltd. – Note 1 (i) 11 Appendix C – Cervantes Corporation Ltd. – Note 13 12 Appendix D – Clean Seas Tuna Limited – Consolidated Statement of Financial Position 12 Appendix E – Clean Seas Tuna Limited – Note 1 (e) 13 Appendix F – Clean Seas Tuna Limited – Note 18, part 1 13 Appendix G – Clean Seas Tuna Limited – Note 18, part 2 14 Appendix H – Clean Seas Tuna Limited – Note 18, part 3 15 Appendix I – Clean Seas Tuna Limited – Note 18, part 4 15 EXECUTIVE SUMMARY This research-based case study and report aims to review the disclosure requirements for intangible assets in an attempt to improve the quality of financial reporting. The study was based on the comparison of the disclosures for the intangible assets of two Australian Securities Exchange listed companies from the same industry, using their latest annual reports. The selected companies are Cervantes Corporation Ltd. and Clean Seas Tuna Limited, both participating in the aquaculture industry. The comparison was done by evaluating individual Notes to the Financial Statements as of June 30, 2012, noting all the disclosures presented for intangible assets and determining compliance...
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...company’s primary assets, is the secret in the sauce and the glue that holds the corporation together (Back, 2010). However, despite the importance of the employees, the companies do not include them as an asset in the balance sheet where all the other assets are being recorded (Kaye, 2012; McGrath, 2010). Employees are considered as an intangible asset to the company (Back, 2010). There are some reasons why employee is not or should not be include in the balance sheet as an asset. Many intangibles such as employees are not owned by the company in the first place (Adams, 2010; Kaye, 2012). Adams (2010) also stated that, a company can only put assets for which it has a clear ownership right on its balance sheet where employees do not meet that test. Furthermore, since there is no financial transaction creating the intangibles, the dollar value of intangibles can be difficult to identify (Adams, 2010). In basic accounting, we can see that accounting entries are made when there is money involve such as when the firm buys something, money is deducted from bank and the expense get booked to an expense or investment (Adams, 2010). However in most cases, intangibles are created outside the monetary system. McGrath (2010) mentioned that, value is created when employees learn something, but other than the employee’s salary, there is no financial transaction. Moreover, valuing employees or human capital is a very difficult task (McGrath, 2010; Weatherly, 2003). Weatherly (2003) also claims that...
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...E12-1 (Classification Issues—Intangibles) Presented below is a list of items that could be included in the intangible assets section of the balance sheet. Instructions (a) Indicate which items on the list would generally be reported as intangible assets in the balance sheet. (b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements. 1. Investment in a subsidiary company. 2. Timberland. 3. Cost of engineering activity required to advance the design of a product to the manufacturing stage. 4. Lease prepayment (6 months’ rent paid in advance). 5. Cost of equipment obtained. 6. Cost of searching for applications of new research findings. 7. Costs incurred in the formation of a corporation. 8. Operating losses incurred in the start-up of a business. 9. Training costs incurred in start-up of new operation. 10. Purchase cost of a franchise. 11. Goodwill generated internally. 12. Cost of testing in search for product alternatives. 13. Goodwill acquired in the purchase of a business. 14. Cost of developing a patent. 15. Cost of purchasing a patent from an inventor. 16. Legal costs incurred in securing a patent. 17. Unrecovered costs of a successful legal suit to protect the patent. 18. Cost of conceptual formulation of possible product alternatives. 19. Cost of purchasing a copyright. 20. Research and development costs. 21. Long-term receivables. 22. Cost of developing a trademark...
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...IAS 38 — Intangible Assets Overview IAS 38 Intangible Assets outlines the accounting requirements for intangible assets, which are non-monetary assets which are without physical substance and identifiable (either being separable or arising from contractual or other legal rights). Intangible assets meeting the relevant recognition criteria are initially measured at cost, subsequently measured at cost or using the revaluation model, and amortised on a systematic basis over their useful lives (unless the asset has an indefinite useful life, in which case it is not amortised). IAS 38 was revised in March 2004 and applies to intangible assets acquired in business combinations occurring on or after 31 March 2004, or otherwise to other intangible assets for annual periods beginning on or after 31 March 2004. History of IAS 38 February 1977 Exposure Draft E9 Accounting for Research and Development Activities July 1978 IAS 9 (1978) Accounting for Research and Development Activities 1 January 1980 Effective date of IAS 9 (1978) August 1991 Exposure Draft E37 Research and Development Costs December 1993 IAS 9 (1993) Research and Development Costs 1 January 1995 Effective date of IAS 9 (1993) June 1995 Exposure Draft E50 Intangible Assets August 1997 E50 was modified and re-exposed as Exposure Draft E59 Intangible Assets September 1998 IAS 38 Intangible Assets 1 July 1999 Effective date of IAS 38 (1998) 31 March 2004 Revisions to IAS 38 1 April 2004 Effective date of March...
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...Goodwill: Apple, Inc. tests their goodwill and intangible assets for impairment at minimum, annually. They may even sooner depending on when the events of changes in circumstances show that these assets may be impaired. Therefore, Apple does not amortize their goodwill and intangible assets with indefinite useful lives. Intangible assets with definite useful lives are amortized over a period of their useful lives, and after are reviewed for impairment. Currently, Apple’s acquired intangible assets with definite lives are being amortized, over periods of three to ten years. The Company established their methods of reporting used based on their reporting structure that they have in place currently. When testing goodwill and impairment, Apple allocates these reporting units to the extent in which it relates to each of the reporting units. Samsung discloses their goodwill by representing the excess of the cost of an acquisition over the fair value of the group’s share of net identifiable assets of the acquired subsidiary at the date of acquisition. However, if the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, then the difference is recognized directly to the income statement. Goodwill on acquisitions of subsidiaries is reported under intangible assets. Samsung deals with their goodwill by testing it annually for impairment and carried at cost less accumulated impairment losses. If there is any change in events that indicates a possible...
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...the University of Calcutta.) A Survey on Accounting & Reporting of Intangible Assets in some selected Indian companies Submitted by Name: MAITREYEE MUKHERJEE Registration no: 043-1221-0272-10 Roll no: Name of the college: Heramba Chandra College. Supervised by Name of the supervisor: JAYANTA GHOSH Name of the college: Heramba Chandra College. BACKGROUND: In 1494, a mathematically minded Veteran monk named Luca Pacioli published his “Summa de Arithmetica, Geometrica”, the first accounting textbook. It illustrated double-entry accounting, a system that makes the modern corporation manageable, even possible. Today, half a millennium later, Pacioli’s process, still pretty much intact, is being challenged like never before. Pacioli’s accounting system lets businesses keep track of changes in their assets. But this system deals primarily with tangible assets such as cash, inventory, investments, receivables, property, plant, and equipment. What go unrecorded are intangible assets such as quality of management, customer loyalty, information infrastructure, trade secrets, patents, goodwill, research, and, considered by some, the ultimate intangible, knowledge—a company’s intellectual capital. FASB...
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...Other intangible assets may be so amortized and deducted from earnings in the determination of income tax liability. Even in the simplest of times, thus, a firm can attain income tax savings to the extent that it can successfully classify intangible assets as something other than goodwill. Thus, it is entirely possible that the GEC Ltd. auditors reclassified some portion of the goodwill account of AEI Ltd. to some other form of intangible asset, and then effected further adjustments to reclassify some of that amount from an asset to an expense. The issue of accounting for intangible assets has expanded in several directions. One of these directions concerns branded products. Some firms claim that the establishment of brands creates an intangible value for a company, and that such value should be able to be amortized for tax purposes. In turn, some auditors (both private and governmental) contend that the value of a brand is a form of goodwill, and as such may not be amortized and deducted from income taxes. In the traditional conception of goodwill, the claim is that a brand has no recordable value until it is sold, and that when it is sold it reflects goodwill that is neither amortizable nor tax deductible. Many firms contend, however, that brands have a current and intangible value. Thus, it is also within the realm of possibility that GEC Ltd. judged that some brand owned by AEI Ltd. possessed an intangible value that could be amortized and deducted. Accounting For Research...
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...Pendergrass Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. * Is the intern correct? No, this is incorrect. Intangible assets should not “always” be amortized over their legal lives. * Explanation Intangible assets are defined as Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance. The intangible assets are amortized over the established legal life or the years of its useful life, whichever ends first. According to Kieso, Kimmel, and Weygandt (2010) intangible assets should be amortized over their legal lives. However, the accounting clerk is stating that intangible assets should “always” be amortized over their legal lives; however, intangible assets with limited lives are amortized and intangible assets with indefinite lives are not amortized. Therefore, it depends on whether the intangible asset is defined over their legal lives or indefinite lives. * What are the basic issues related to accounting for intangible assets? The process of allocating the cost of intangible assets to expense is called amortization and intangible assets are typically amortized on a straight-line basis. To record amortization of an intangible asset, a company increases (debits) Amortization Expense, and decreases (credits) the specific intangible asset. Company’s record intangible assets at cost and intangible assets are categorized...
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...the File Date: September 15, 2015 From: Juanita Quiroz Re: Accounting treatment for the trademark and goodwill Facts Express Dry-Cleaning purchased Deluxe Dry-Cleaning. In the purchase, Express acquired a trademark with a current remaining useful life of five years. The trademark is renewable every ten years, and Express plans to continuously renew it. The annual impairment test shows the net assets (i.e. the carrying amount) of this reporting unit are $4,000,000, which includes intangible assets of $2,200,000, a trademark of $400,000, and goodwill of $1,400,000. The fair value of the reporting unit is considered to be $3,400,000, which includes tangible assets of $2,200,000, the trademark valued at $300,000, and internally developed, unrecognizable intangible patent valued at $100,000. Express expects the division to generate profits in years to follow. Issues 1) Should Express amortize the trademark? 2) Should impairment losses be recorded for the trademark and the goodwill? 3) Determine the implied value of goodwill. Conclusion Express Dry-Cleaning should not amortize the trademark. In order for the trademark to be amortized; it would need a finite useful life. (FASB ASC 350-30-35-1) The useful life of the trademark is considered to be indefinite because Express plans on renewing it and cash flows are expected to continue indefinitely. (FASB ASC 350-30-35-4) Impairment is defined by the FASB Accounting Standards Codification as occurring when the carrying amount...
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...plans to change their policy of accounting for product recalls. The context of our research associated with these transactions, one undertaken and one planned, are twofold: International standards under IFRS and domestic U.S. standards under U.S. GAAP. Relevant facts: * Tom agrees to purchase Rural Life Supply Co. for $150 million in exchange for: * Assets of Rural Life Supply Co. that include: * Exclusive supplier contract of farming equipment with Farming Depot and non-contractual customer relationship with Farming Depot for routine purchases of power tools. * Exclusive supplier contract of power tools with Cattle Caller and non-exclusive contract associated with the customer relationship with Cattle Caller for the backlog of orders for farming power equipment. * Tom agrees to purchase Tractor Heaven for $90 million in exchange for: * Assets of Tractor Heaven that include: * Customer lists of Tractor Heaven, half of which contain confidentiality agreements. * Non-contractual customer relationship with Bonanza Farming. Issue: What is the appropriate GAAP and IFRS accounting treatment for Tom’s Tractor Supply acquisitions of Rural Life Supply Co. and Tractor Heaven? Analysis: Deloitte guidance FASB ASC-805-20-55-20, 805-20-55-55 **SEC S99-3: At bottom of 805 stds page Conclusion: GAAP-Tom’s The exclusive supplier contracts Tom’s acquired from RLS are identifiable intangible assets, and are accounted for separately...
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...[pic] PROGRAMME: CORPORATE MASTER IN BUSINESS ADMINISTRATION COURSE: ACCOUNTING FOR MANAGER FOR 2015/2016 SEM2 (EBA 6113) Tel: 013-8119088 Unimas: tmichael@feb.unimas.my Gmail: mtinggi@gmail.com CASE STUDY Lecturer : Mr. Michael Tinggi CASE 1 1. An accountant prepared a balance sheet for a business. In the balance sheet, the equity of the owner was shown next to the liabilities. This confused the owner, who argued: My equity is my major asset and so should be shown as an asset on the balance sheet. How would you explain this misunderstanding to the owner? 2. The accountant goes on to explain that the the balance sheet shows how much a business is worth. Do you agree with this statement? Discuss. CASE 2 3.0 Valuing Brands as part of intangible product in the Balance Sheet. Millward Brown Optimor, part of WPP marketing services group, recently produced a report which ranked and valued the top ten world ranking brands for 2007 as follows: Ranking Brand Value ($M) 1 Google 66,434 2 GE (General Electric) 61,880 3 Microsoft 54,951 4 Coca-cola 44,134 5 China Mobile 41,214 6 Marlboro 39,166 7 Wal-Mart 36,880 8 Citi 33,706 9 IBM 33,572 10 Toyota 33,427 We can see that the valuations placed on...
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...The decrease of current assets and current liabilities shows that the actual business activities of company declined as well, contrary to the sharp growth of intangible assets (Table #2). Table #3. * The negative changing of Balance Sheet Structure over 2000-to 2004 influenced the financial performance of Company during Feb 2003 – Aug 2004 (three six-month periods). * Despite of a moderate growth of Revenue, EBIT and Net income were continuously decreasing. Outcomes: * Over the period of 2000-2004 Krispy Kreme Inc. grew tremendously. As a result, the quality of new purchases was low. The average level of a new franchises’ performance became less that influenced the performance of the main company. * The assets turnover declined significantly for the period of 2000-2004, from 2.10 to 1.01. It means that an efficiency of the working capital dropped; and the effectiveness of Krispy Kreme Inc.’s business decreased as well. * The activity ratios decreased gradually; and Krispy Kreme Inc. tried to hide the actual drop of Net Income under a doubtful accounting scheme. * As a result the growth of intangible assets of Company reached the level of other assets. The long-term debt increased too. In the second half of 2004, all stakeholders understood that the actual price of Krispy’s intangibles was close to “nil”, because the company was in pre-bankruptcy...
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...attributable to precombination services is $5M and postcombination services is $7M * Allfoods incurred $4M of acquisition related costs Fair Value of Assets Acquired and Liabilities Assumed: * Baked Beans owns manufacturing facility in CA comprised of: * Land and two buildings – could be rezoned into residential subdivision; management determined the fair value as residential property would be $30M * Machinery/Equipment – moveable equipment (sold separately) could be sold at auction for $2M * California facility (as acquired) – estimated worth is $36M * Land fair value for industrial purposes is $21M * Buildings and machinery currently being used for industrial purposes fair value is $7M Valuation of Intangible Assets:...
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...2/08/2013 Lecture 2 – Intangible assets ACCY 902, Semester 2, 2013 A/Professor Indra Abeysekera University of Wollongong, Australia 1 A/Professor Indra Abeysekera Deegan Chapter 8 Relevant accounting standards : AASB 138 2 A/Professor Indra Abeysekera Learning objectives 1. Understand the classes of intangibles (internally-generated and purchased) and how to account for them Understand a special case of intangible – research and development, and how to account for them Understand a special case of intangible – goodwill, and how to account for them 2. 3. 3 A/Professor Indra Abeysekera 1 2/08/2013 Definition of intangible assets ………………………………………. Includes patents, goodwill, mastheads, brand names, copyrights, research and development, and trademarks The lack of physical substance does not preclude an item from being considered to be an asset Intangible assets, as a category, must be separately disclosed in the statement of financial position (balance sheet) 4 A/Professor Indra Abeysekera Identifiable vs unidentifiable intangibles Identifiable intangibles Unidentifiable intangibles Paragraph 63 5 A/Professor Indra Abeysekera Recognition of intangible assets ………….. Intangible assets other than goodwill are required to be separable if they are to be recognised as assets for statement of financial position (balance sheet) purposes ‘Separable’ refers to being able to rent, sell, exchange or distribute the specific future...
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...each alternative and indicate which alternative you believe is best and why. In regards to the information given in the Polluter case, there are several ways the company can classify the $3 million purchase of emission allowances (“EAs”) from Clean Air Corp. First, it is important to understand the Polluter’s intention for the EAs and nature of their ‘business.’ In order to understand what are the “feasible alternative classifications in the statement of cash flows” for the $3 million purchase, Polluter will determine what type of asset they will classify the EAs as on their balance sheet. Following are three alternatives Polluter can consider as outlined in Deloitte’s “Accounting for Emission Rights” paper: 1. The EAs are intangible assets as defined under SFAS No. 142, Goodwill and Other Intangible Assets, because they lack physical substance but do not meet the definition of a financial asset under SFAS 140. 2. EAs are listed as financial assets because markets and exchanges for the trading of EAs provided evidence that they qualified as financial assets as the allowances would be readily convertible to cash. 3. An alternative view is that they are listed as inventory, as they are part of the necessary costs to comply with environmental regulations and emissions reduction schemes. Polluter currently has significantly high levels of greenhouse gas pollution, which are emitted throughout their normal course of business operations. As stated in the case, Polluter...
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