. We have a separate accounting standard, AASB 138, that specifically deals with intangible assets and it provides different requirements from those of property, plant and equipment (AASB 116). Write...

Student Paper
Question 1
There are two sides of the coin when one discusses whether it is necessary to have
different accounting rules for tangible and intangible assets. In the current accounting methods
different treatments are applied for both the kind of assets. Intangible assets are only recognized
when they are purchased by the company, exception being deferred development cost which can
be recognized when internally developed. In the other case there is no restriction on recognizing
internally generated tangible assets. There are strict cases for recognizing the value of the
intangible assets, they are initially recognized at the cost at which they are purchased. Later it is
on the basis of fair value measurement, which can only be determined if there is a market for
such an intangible asset. People and fraternity who are in favour of having different accounting
treatment for tangible and intangible assets argue that it is fair to have it this way as
measurement of the value of these assets is fundamentally different (AASB 138, 2017).
However on the flip side of the coin, people who are against such differential treatment
argues that the value of intangible assets can also be measured in an reliable manner and these
different rules are creating inconsistencies in the financial statements. It has also been argued
that these rules also impede comparisons between two companies one of which might be
purchasing intangible assets and the companies which generate them internally (Accounting for
intangible assets, 2017).
There are some intangible assets like brand names, rights, publishing rights which has
significant value for any organization. These intangibles can have such value which might not be
reflected in the market value of the company. This is where the asymmetry of information is
created for people who rely on accounting statements to make an informed call on the value of
the company. When companies are acquired then all such factors are valued and then considered
in the intangible assets of the company. Why isn’t they can be measured by defined methodology
and always fairly valued in books of account? This would help investors gauge the correct value
of the company. There are instances when brand value is much higher than the market value of
the company; but since it is generated internally it is not valued in the book of accounts. A
layman investor cannot have such a perspective of valuation and hence might not be able to
value the company correctly.
A strong framework is needed which either allow and facilitate valuation of all kind of
assets for the company or there is a need where the accounting treatment can be made more
exhaustive so that fair representation can be seen for the investors and financial statement
readers. The intangible assets are internally generated by the company over the years and there
are companies which have developed framework to value it. This is where accounting bodies
should come together and adapt such frameworks and make the recognition exercise more
meaningful. The intangible assets are very valuable in many of the companies and not able to
record those values can be deterring for the investors (Reporting requirements under AASB 138,
2017).
Question 2
AASB...