Intangible Assets for Trademarks and Business Methodologies

Question: Write about theIntangible Assets for Trademarks and Business Methodologies. Answer: Intangible assets are something that does not possess physical characteristics. Patents, copyrights, trademarks, business methodologies and other such corporate intellectual properties are considered as intangible assets. Intangible assets are further classified as indefinite or definite assets. For example, the brand name of a company is referred to as indefinite intangible assets as its existence is dependent on the operation of the company (Biondi and Lapsley 2014). On the other hand, if the same company goes in an agreement with another company without any extension, then it becomes a definite asset. As the name suggests, the intangible assets do not have any kind of physical value of such as factory or equipment but they tend to be valuable for a firm and liable for the success or failure. For example, the brand name of Nestle is not a physical asset but its business has become successful due to the recognition of its brand name. Although an intangible asset, brand name has a bi g impact on the sale and profit of Nestle since their establishment. However, if a business creates intangible assets then they do not need to write that on income tax return but if they attain it then the cost will be considered as capital expense (Castilla-Polo and Gallardo-Vzquez 2016). For this essay, it will need to be considered if the intangibles pass the definition and recognition tests. Assets are the expenditures which are made with an aim of gaining profits and cash flows in future. It is not difficult to differentiate between tangible and intangible assets. Tangible assets are inventories, land and buildings and intangible assets are investments, cash, etc. the assets which are obtained from outside the firm normally have individual costs and distinct benefits. But difficulty can arise while accounting such assets. Certain costs involved tend to have inconsistent approaches for recording, amortizing and revaluing of the assets. The internally generated intangibles are those that are developed within the firm but they face recognition problems (Christensen and Nikolaev 2013). They are developed in the internal structure of the firm, once ignored, is not given proper recognition when it comes to the financial statements. This negligence is due to the lack of connection between the costs and future revenue. Moreover, the issue in directing costs or value of intangibles and preference of reliability over relevance while discussing asset information demonstrates that self- developed intangibles are not generally recognized. Although the intangible assets existed long ago, but they were not identified and remained unknown until the creation of value (Crema and Nosella 2014). The controversial topic in the contemporary intellectual property right is the amount to which property rights conception, developed with the association of land and other such tangible products which can be approved to various forms of property as in, the rights in the spectrum and in copyrights or patents. In this essay, it can be explained that if the variations in the minimum duration of copyrights and patents are considered, then the leave of the basic property outset from the tangible to intangible assets should be encouraged (Kanodia and Sapra 2016). There are few instances, in which the concepts of property rights which are applicable to land can function better for intangible assets because of the complications in the designing of land- based system. If the patent has a short life span then it is an absolute necessity to make rules for handling the restraints on the time- to- time amendment. There are different e- commerce businesses which have limited the accessibility of i njunction to secure the select rights of patent use. It can be noted that the restrictions on right of alienation in the spectrum leads to key social loss, just like the use of patent exhaustion rule in the licensing of intellectual property (Lim, Macias and Moeller 2016). The Australian equivalent standard is AASB 138 Intangible Assets which is applicable to the following Australian interpretations- Interpretation 12 Service Concession Arrangements, Interpretation 129 Service Concession Arrangements and Interpretation 132 Intangible Assets- Web Site Costs. Development refers to the knowledge and findings about research are applied for planning and designing of innovative devices, systems, products and processes before its utilization (Madhani 2015). Identifiability of intangible assets are met when they are being capable of separation or division from their originality and sold, licensed, rented, transferred or exchanged with a similar contract, asset or liability. These arise from the legal and contractual rights whether they can be moveable or divisible from their originality or from other privileges and obligation. Intangible asset is such an identifiable non- fiscal asset which lacks any kind of material substance. It requires research of the orig inal and properly designed investigation which is carried out with the vision of achieving modern logical and technical knowledge and perceptive. If the intangible assets are separately acquired then the cost will comprise of the purchasing price and other prices which directly attribute to preparation of assets for proposed use (Nakamura 2015). In accounting, the convention of conservatism which can also be referred to as the doctrine of prudence is a policy or procedure of predicting the feasible loss in the future but not the gain. This particular policy has a tendency to devalue and not overemphasize net earnings and resources which ultimately leads the companies to safeguard them. This principle includes a general theory of identifying the expenses and responsibilities as quickly as possible, especially when there is no assurance about the after effect but only requires recognition of revenues and assets only after receiving assurance. There is also conservatism constraint which means that when doubt arises, information should be reported which neither devalue the profits and possessions nor overestimate the operating cost and liability (Osinski et al. 2017). It comes into use when all the other concepts, principles, theories and presumptions do not succeed in providing the accountant with guidance. It is the final stag e of guidance for the accountant. It cannot be applied in those situations where no doubt is present about accurate accounting of asset or expense. For example, if there is doubt regarding the value of inventory, it is preferred to use a low market cost (Saunders and Brynjolfsson 2015). Fig- R D and economic growth Source- (Shalev, Zhang and Zhang 2013) Most of the developed countries these days support their financial growth on the making and use of knowledge. Knowledge has become the prime creator of competitive advantage for the companies and countries on a global market. Studying of knowledge as the main determinant of fiscal growth exists in the new growth theory. This theory has two of the most important criteria, endogenous growth models and evolutionary approach to delivering the composite of industrial change as a foundation of economic growth (Sinclair and Keller 2014). The common link is the attempt to derive a proper solution to the problem of what are the main drivers of complex technological changes. Endogenous growth models are based on the research and development, R D, following the creation of organized knowledge in generating financial growth. The base of these approaches is dependent on the idea of creative destruction. Perception motivates the individuals to involve in the R D activities so that extra profit c an be ensured. Earlier, the economic recession had a contribution towards the appearance and dissemination of evolutionary and institutional trends in financially viable theory. It has given rise to a notion that R D is important but not potent enough to develop technological change (Su and Wells 2015). IAS 38 Intangible Assets outline the accounting requirements of the intangible non- financial assets which are deficit in physical substance and easily recognizable. These are the assets which can meet the significant identification factors and are primarily calculated at cost by means of the revaluation model and amortized on an orderly basis over the useful lives. It was revised in March 2004 which is applicable to all the intangible assets acquired through business combinations or for the annual period held after March 2004. The objective of IAS 38 is to list the accounting treatment for intangible assets which do not deal with IFRS (Taylor, Richardson and Lanis 2015). It is required to set a standard of entity for recognizing the intangible asset if the specific conditions are fulfilled. It also denotes how to evaluate the carrying amount of intangible assets and demands some disclosures about intangible assets. The exception in IAS 38 are financial assets, exploration and evalua tion assets, expenditure on the extraction and development of resources, intangible assets of insurance companies and the intangible assets of other IFRS which are held for sale, lease assets, deferred tax assets, assets coming from employee benefits and goodwill. Under IFRSs, paragraph 21 of IAS 38 declares that intangible assets which are developed from within will be identified only the criteria are fulfilled (Teece 2015). If it is plausible that the assumed future benefits are attributable to the asset will flow to the unit and if the cost of asset can be measured with reliability. Under paragraph 63 of IAS 38, certain internally created intangible assets like mast heads, brands, customer lists and publishing titles are not identified as intangible assets if they are not purchased externally or obtained in a business combination. These assets are classified as being incurred in the phase of research or development because all research phase costs are expensed as incurred. Under paragraph 56 of IAS 38, the examples of research expense activities include those that are aimed at attaining new knowledge; the thirst for analysis and the ultimate selection of applications related to findings of research and other knowledge; the quest for alterna tives for the products, processes, services, systems, materials and devices; the formulation, estimation, plan and the ultimate selection of the available alternatives for the innovative materials, services, products, systems, devices and processes (Vetoshkina and Tukhvatullin 2014). If the entity is unable to indicate the phase in which the costs were incurred, it should be treated as if the expenses were incurred in the research phase of the project. Accounting for intangible products has become significant in the recent years because of the change in business environment. Their prime objective is to list down the accounting treatment which is not given specific attention in other accounting. The intangible assets accounting is the need of an enterprise to identify intangible assets if some of the conditions are fulfilled. Accounting Standard AS 26 which was developed by the Institute of Chartered Accountants of India deals with the intangible assets (Osinski et al. 2017). It should be applied by all the enterprises in accounting for intangible assets excluding those that are covered in other accounting standard such as non regenerative resources, financial asset, and the assets arriving from the policy holders in insurance companies. According to AS 26, intangible assets are recognizable non- financial assets without materialistic substances held for the use in supply and production of goods and services, for the purpose of rent and other administrative purposes. Monetary assets in AS 26 are the assets received on determinable amounts which do not satisfy the definition of intangible assets, the acquired expenditure or the expense when it is incurred (Su and Wells 2015). Intangibles are not something different from other non- economic assets because they are anticipated to promote the owner ahead of the existing working series of industry. Unlike other non- monetary assets, intangible assets do not exist physically as tangible products. These are the assets which cannot be seen, touched or felt; neither do they have any volume but hold the right to future benefits. Intangible assets are non- physical and non- current, provide future benefits but have a high degree of uncertainty about the value of future benefits. There are some intangibles which can be associated to the development and manufacturing of products while there are others which can be associated with the creation and maintenance of the product demand. Patents and copyrights reflect the former but trades and trademarks reflect the latter. Goodwill reflects both and represents valuations which cannot be assumed and not easy to relate to the revenue of specific period. Reference Biondi, L. and Lapsley, I., 2014. Accounting, transparency and governance: the heritage assets problem.Qualitative Research in Accounting Management,11(2), pp.146-164. Castilla-Polo, F. and Gallardo-Vzquez, D., 2016. The main topics of research on disclosures of intangible assets: a critical review.Accounting, Auditing Accountability Journal,29(2), pp.323-356. Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial assets pass the market test?.Review of Accounting Studies,18(3), pp.734-775. Crema, M. and Nosella, A., 2014. Intangible assets management and evaluation: Evidence from SMEs.Engineering Management Journal,26(1), pp.8-20. Kanodia, C. and Sapra, H., 2016. A real effects perspective to accounting measurement and disclosure: Implications and insights for future research.Journal of Accounting Research,54(2), pp.623-676. Lim, S.C., Macias, A.J. and Moeller, T., 2016. Intangible assets and capital structure. Madhani, P.M., 2015. A Study on the Corporate Governance and Disclosure Practices of Tangible Assets and Intangible Assets-Dominated Firms and Their Relationship.Browser Download This Paper. Nakamura, L.I., 2015. Advertising, intangible assets, and unpriced entertainment. InIntangibles, Market Failure and Innovation Performance(pp. 11-26). Springer International Publishing. Osinski, M., Osinski, M., Selig, P.M., Selig, P.M., Matos, F., Matos, F., Roman, D.J. and Roman, D.J., 2017. Methods of evaluation of intangible assets and intellectual capital.Journal of Intellectual Capital,18(3), pp.470-485. Saunders, A. and Brynjolfsson, E., 2015. Valuing IT-related intangible assets. Shalev, R.O.N., Zhang, I.X. and Zhang, Y., 2013. CEO compensation and fair value accounting: Evidence from purchase price allocation.Journal of Accounting Research,51(4), pp.819-854. Sinclair, R.N. and Keller, K.L., 2014. A case for brands as assets: Acquired and internally developed.Journal of Brand Management,21(4), pp.286-302. Su, W.H. and Wells, P., 2015. The association of identifiable intangible assets acquired and recognised in business acquisitions with postacquisition firm performance.Accounting Finance,55(4), pp.1171-1199. Taylor, G., Richardson, G. and Lanis, R., 2015. Multinationality, tax havens, intangible assets, and transfer pricing aggressiveness: An empirical analysis.Journal of International Accounting Research,14(1), pp.25-57. Teece, D.J., 2015. Intangible assets and a theory of heterogeneous firms. InIntangibles, Market Failure and Innovation Performance(pp. 217-239). Springer International Publishing. Vetoshkina, E.Y. and Tukhvatullin, R.S., 2014. The problem of accounting for the costs incurred after the initial recognition of an intangible asset.Mediterranean Journal of Social Sciences,5(24), p.52.