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Sample on Accounting Standard For Intangible Assets

19686Downloads1 I Published: 02 Jul ,2018

Executive Summary

Intangible assets of an organization can be definite or indefinite in nature which should have to be evaluated effectively and efficiently as per the accounting standard of AASB 138 and 136. Evaluation of intangible assets through recognition, acquisition and amortization should have to be interpreted through which financial statement can be reviewed for a particular financial year appropriately. In this coursework report Australia-based banking organization Westpac Banking Group's intangible assets from the annual report and financial statement are evaluated through impairment, amortization and identifiability criteria of AASB.

Overview of the company

In this reported statement, the selected company is Westpac Banking Group of Australia which is listed on the Australian Securities Exchange (ASX). The organization is a public limited banking company with a provision of financial and banking services in the World Wide in an appropriate manner. Some branches in all over the World are around 1429 and products and services of this banking organization rare traded in ASX, NYSE (New York Stock Exchange) and NZX (New Zealand Stock Exchange) (Ding et al. 2016, p.25). Westpac banking group was founded on 1982 with the headquarters in Westpac in Sydney with around 3850 locations. Some workers are around 32620 as per the last annual report and continued to increase year to year. Products and services offered by this organization are mainly corporate and investment banking, wealth management, insurance and financial services, mortgages and credit cards to the customers. According to the financial year 2015, the company's revenue is around A$ 21.642 with total assets was around A $812.156 billion. Therefore it can be concluded that the company has served Worldwide and can meet the requirements of the customers in an efficient manner and revenue and total assets with net income of the organization are continued to increase (Chan et al. 2016, p.250). In this regard, intangible assets of this company should have to be reviewed and evaluated to understand recognition and amortization aspects of intangible assets.

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Composition of the intangible assets in the company

Intangible assets

In general terms it has been considered by the accountants and accounting standard boards that intangible assets are not physical in nature but considered as an assets such as trademarks, copyrights, brand recognition goodwill and patents which are to be included in the financial statements of balance sheet of a company as per accounting rules and standards effectively and appropriately (Castilla-Polo and Gallardo-Vázquez, 2016, p.329).

Intangible assets as per comprehensive income of Westpac

From the above statement of quarterly net profit, the intangible assets are amortized with the amount of $ 76 million. Again as per the financial statement of Westpac Banking group, the total intangible assets was around $ 8128000 in 2015, and in 2016 it was increased to $ 8816.

Evaluation of the identifiability, recognition, and acquisition of intangible assets as per the financial statements of the company

Evaluation of recognition and acquisition of intangible assets as per the balance sheet of 2015 of Westpac Banking Group, Australian Accounting Standards Board, have given rules and regulation for the accounting of intangible assets effectively in an appropriate manner. As per AASB 138, identifiability, recognition, and acquisition of intangible assets should have to be interpreted about the financial statement of Westpac group.

Identifiability of Intangible assets as per AASB 138

As per AASB 138, identifiability of intangible assets can be evaluated if is considered by the management team of the organization that it can be separated, transferable, exchangeable, sold and licensed effectively and efficiently.

In other case intangible assets can be identified if the assets can fulfill the criteria for legal rights and it is contractual in nature, again it should be considered that whether the assets can be separated from other obligations and rights of assets (Cheng and Finney, 2016, p.40). From the above financial statement of 2015 of Westpac, it can be said that the organization's intangible assets has fulfilled all such identifiability criteria and amounted to $ 8128000.

Recognition of intangible assets as per AASB 138

To consider as intangible assets, an asset should have to fulfill recognition criteria appropriately as described under the standards of AASB respectively. As Westpac group’s intangible assets have fulfilled such recognition criteria, the number of intangible assets have increased effectively that can lead the company towards the creation of brand loyalty as well as higher revenue and profitability.

As per the recognition criteria, it has been described in AASB that the cost of fixed assets should have to be measured in a reliable and efficient manner with the future economic benefit that can be attributable to such assets respectively (Carvalho et al. 2016, p.16). Therefore it can be considered that the assets should have to earn a future economic benefit that can lead to meet the recognition criteria as intangible assets and these criteria are fulfilled by the Westpac Banking Group.

Acquisition of intangible assets as per AASB 138

As per AASB 138, it has been described that if the assets are indefinite in nature, the assets should not be amortized. In this regard, assets should have to be reviewed in each financial year for reporting purpose whether the criteria for intangible assets are met or not. Westpac bank’s intangible assets have met all these criteria to identify as Intangible assets (Dickinson et al. 2016, p.430).

Evaluating measurement and determination and amortization of intangible assets in the company

Measurement of Intangible Assets as per AASB 138

As specified in the accounting standards of AASB 138, initial measurement for the intangible assets should have to follow certain criteria tat about the acquisition cost and evaluation model criteria should have to be evaluated. An organization at the time of determining intangible assets must follow cost or revaluation model. As per cost model, from the value of intangible assets accumulated amortization and impairment loss should be subtracted. Under the model of revaluation of intangible assets, such assets should be valued at their revalued price to determine inactive market effectively and efficiently (Steenkamp et al. 2016, p.134).

In this context, the finance manager of Westpac Banking Group should have to consider all such criteria and rules for intangible assets to measure after acquisition appropriately.

Amortisation of intangible assets as per AASB 138

To review financial performance and financial position of an organization and to view strengths and weaknesses of that company for particular financial years, the preparation of financial statements should have to be evaluated and interpreted in an efficient manner. In this regard as per the accounting standards boards, valuation of intangible assets and criteria should have to be understood by business analysts and accountant to appropriately review financial statements. Australia-based banking organization Westpac Banking Group's management team must evaluate financial statement for amortization of intangible assets as per AASB (Carvalho et al. 2016, p.14). In this context, if an intangible asset has the useful life which is considered as finite in nature should be amortized at its cost less scrap value. If the assets have to gain any future economic benefits, then finance manager should have to adopt amortization method as Westpac have implemented amortization method for intangible assets.

Evaluating the impairment of intangible assets as per the financial statement measurement

Testing of Impairment of Intangible Assets

In this regard evaluation of the impairment of intangible assets as per the financial statement as prescribed by AASB 138 and AASB 136, it should have been considered that the assets are carried at recoverable value but not more than that value respectively for which the impairment test is required effectively and efficiently by the finance manager and accountant. Westpac group should have to require for impairment test for its intangible assets to review of financial statement (Banker et al. 2016, p.231). The accountant must recognize the impairment of the asset as impairment loss which should be debited to account for impairment loss and to be credited to intangible assets account as per accounting standards.

At the time of preparing the financial income statement and balance sheet, such steps were followed by an accountant for which accurate accounting for intangible assets was done and reflected in the balance sheet (Healy, 2016, p.530).

Different indications of impairment of intangible assets such as if the market value of assets decreases, maximization of the rate of interest, the value of net assets is more than the capitalized value are the external sources of impairment. Internal sources of impairment such as the worst performance of assets, carrying some such assets are more than its fair value, or physical damage of assets are the criteria for impairment loss of assets as discussed in AASB 138 (Small et al. 2016, p.16).

Discussing sufficient information provided in the company's financial statement as per AASB 138 and AASB 136

Disclosure of Intangible assets as per AASB 136 and 138

In this regard an organisation should have to consider the regulations as per AASB 138 and 136 regarding disclosure of intangible assets, that the finance manager and accountant should have to evaluate that whether the criteria for disclosure of intangible assets are fulfilled or not in an appropriate manner.

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Disclosure of intangible assets should have three main parts such as disclosure for the class of assets, disclosure for the reportable segments of the company and other disclosures. Westpac banking group also revealed these criteria at the time of accounting for intangible assets and impairment of loss effectively (Bond et al. 2016, p.155). Disclosure should have to be represented with detailed information regarding recognition of impairment loss in profit and loss account or valuation of intangible assets in the Balance Sheet, recoverable value or fair value of intangible assets and whether future economic benefits are gained or not from those intangible assets should have to be represented in disclosure.

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Reference list

  • Banker, R.D., Basu, S. and Bryzgalov, D., 2016. Implications of Impairment Decisions and Assets' Cash-Flow Horizons for Conservatism Research. The Accounting Review.
  • Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136. Accounting & Finance.
  • Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. The Recognition of Goodwill and Other Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting Review, 26(1), pp.4-20.
  • Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. The Recognition of Goodwill and Other Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting Review, 26(1), pp.4-20.
  • Castilla-Polo, F. and Gallardo-Vázquez, D., 2016. The main topics of research on disclosures of intangible assets: a critical review. Accounting, Auditing & Accountability Journal, 29(2), pp.323-356.
  • Chan, M., Kemp, S. and Finsterwalder, J., 2016. The concept of near money in loyalty programmes. Journal of Retailing and Consumer Services, 31, pp.246-255.
  • Cheng, K. and Finney, S., 2016. The Tangle of Intangible Assets and Business Combinations. The CPA Journal, 86(1), p.40.
  • Dickinson, V., Wangerin, D.D. and Wild, J.J., 2016. Accounting Rules and Post-Acquisition Profitability in Business Combinations. Accounting Horizons, 30(4), pp.427-447.
  • Ding, Y., Ding, Y., Keh, H.T. and Keh, H.T., 2016. A re-examination of service standardization versus customization from the consumer’s perspective. Journal of Services Marketing, 30(1), pp.16-28.
  • Healy, P.M., 2016. Reflections on M&A accounting from AOL’s acquisition of Time Warner. Accounting and Business Research, 46(5), pp.528-541.
  • Small, R., Yaseen, Y. and Schmidt, L., 2016. Amortisation of intangible assets: accounting technical. Professional Accountant, 2016(28), pp.16-17.
  • Steenkamp, N., Steenkamp, N., Steenkamp, S. and Steenkamp, S., 2016. AASB 138: catalyst for managerial decisions reducing R&D spending?. Journal of Financial Reporting and Accounting, 14(1), pp.116-130.
  • Tsai, C.F., Lu, Y.H., Hung, Y.C. and Yen, D.C., 2016. Intangible assets evaluation: The machine learning perspective. Neurocomputing, 175, pp.110-120.
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