ACCT6003 Financial Accounting Process For Intangible Asset
Questions:
2. Apply accounting principles and standards when accounting for non-current assets, revenue and liabilities and recognise the judgements required in a range of diverse business contexts
3. Differentiate between shares and debentures and apply appropriate accounting procedures
Answer:
As stated under the provision of AASB 138, the intangible asset cannot be considered as the physical asset in nature. The primary purpose of developing technology is to improve the sales for ChiHerbal Ltd. Cost associated with the asset development can be capitalized or the same can be recognized as the intangible asset (Steenkamp and Steenkamp 2016). Any form of research work that is made with the purpose of improving, researching and planning in context of the product should be regarded as the development cost. The product must possess the economic influence on the business so that it can identify development cost. The cost associated with the product or research work relating to the object must be taken into the consideration based on the provision of AASB 138.
In the current case study of ChiHerbal Ltd the capitalized method is employed to identify the development expenditure. The expenditure should be considered as the capitalized or the intangible asset (Russell 2017). Consequently, the other costs should be regarded as general expenditure of business. Therefore, it is essential for ChiHerbal Ltd to differentiate among the capitalized costs and the general expenditure associated to the use of asset. The management is accountable for recognizing the expenditure separately to recognize the intangible asset. Based on the provision of the AASB 138, the total amount that is spend on the R&D of the product must be declared in the fiscal statement of an organization as this helps in identifying the intangible assets.
Cost associated to research, patent application fees, research for design modification and legal expenditure should be considered under the provision of AASB 138. They are termed as the intangible asset based on the provision of AASB 138.
References:
Russell, M., 2017. Management incentives to recognise intangible assets. Accounting & Finance, 57, pp.211-234.
Steenkamp, N. 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.
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