Economics And Business: Financial Accounting For Companies Assessment (Essay Sample)

Financial Accounting for Companies Assessment 1 Case Study Analysis Student’s Name Institutional Affiliation Date Financial Accounting for Companies Assessment 1 Part I An intangible asset is measured initially in terms of the asset cost. This cost could be explained in terms of separate acquisition, business combination and lastly through an internally generated entity. In separate acquisition, price an entity pays is normally a reflection of the expectation that the future benefits will flow to the entity that has acquired the property. The implication of this is that the entity expects that there would be an obvious flow of the economic benefits despite the uncertainties and the volume inflow. However, an intangible asset cost could also be measured reliably (Hunter, Webster & Wyatt, 2012). This reliable measurement happens especially when purchases is in the form of cash or any other monetary asset. Such costs that can be attributed to acquired assets are price of purchase plus other costs which directly make an asset to be in its rightful and working condition The other way through which acquisition of intangible assets takes place is by business combination. In this case, the asset value can be measured reliably and without any hindrance. An asset, which has been acquired this way, could be separable, though this only happens together with related liability, contract and identifiable assets. For such an acquisition to take place, the acquirer has the burden to recognize the intangible asset in a separate way from the goodwill but altogether with the related items (Hunter, Webster & Wyatt, 2012). In fact, the acquirer could in a position to identify intangible assets which are complementary as a single asset as long as the individual assets have similar usefulness. Lastly, acquisition through an internally generated entity, normally have myriads of problems of whether or when there is an asset which has been identified and which will result into the future expected benefits. In some cases, it might not be easy to differentiate the costs of generating an intangible asset to that of maintaining it, not to mention the goodwill generation cost and those of operating the organization daily (Zambon, Zambon & Marzo, 2016). It thus implies that for an entity to comply with general requirements for initial measurement and recognition, it must apply all the requirements stated in paragraphs 52 to 67. Part II The costs which are incurred in the phase of research of an intangible asset should be recognized as an expense the moment that it is incurred. At the same time, in the research phase of an internal project, it could not be possible for the entity to demonstrate that the intangible assets could generate meaningful benefit in the future. This would therefore be the reason the recognition of an expenditure could be done as if it were an expense but only after it has been incurred. Research activities could involve search of information which is new and has never existed (Bounfour & Edvinsson, 2005). Other issues which entails research phase are the search of alternative materials from those already existing and search evaluation as well as the selection of findings of research. However, an intangible on the stage of development phase can only be recognised when an organization could prove various issues. The first issue to be proved, in this phase in an internal project would be the technical feasibility about completing a project so that it can be presented for use or sale (Zйghal & Maaloul, 2011). Another issue to be clarified is whether an intangible asset is being completed for use or sale in an organization. Yet another condition is the ability of the asset to measure the expenditure which is attributed to an asset reliably during the process of its development. The other issue is how the asset, intangible could be able to generate some future benefits of the economic benefits. Again, it is at the phase of development where an organization would be required to identify an asset termed as intangible as well as showing that it would generate some benefits which are economical in the future This comes as a result that development is far much ahead of research as it involves actions which have been taken. These activities which could amount to development include construction, design and testing of those pre-production models. Yest another work is of designing the tools using new and improved technology, leave alone piloting the plant to be used for testing purposes. To demonstrate the acquisition of economic benefits by an intangible asset, future benefits to be received should be assessed by the concerned entity (Zanoni, 2009). If the economic benefits are generated by the combination of various assets, the concepts of cash-generating can be used as mentioned in the NZ IAS 36. Moreover, the resource availability for completion and use requires a plan of a business that shows both financial and technical resources are at its disposal to carry out everything that it needs. At some points, it’s the entity to show the presence of an external source of fund through an indication of the lender over his willingness to fund a plan that is to be undertaken (Stanton, Stanton, & Charles Sturt University. 2005). At the same time, the costing system that is used can occasionally measure reliably the cost that could be used in generating the intangible asset but from within the entity concerned. This could be costs like salaries and the expenditures incurred in securing both copyright and patent licences which could aid in the software development. Lastly, any internally generated brands and other items which are similar need not be recognised as intangible asset. In fact, the expenditure on internally generated brand cannot easily be distinguished from those costs which are used in the development of a whole business (Thomas, 2015). This means that items of this nature cannot be grouped as intangible assets by entities which are involved. This criterion given here is very clear and hence any cost should not be ignored unnecessarily to avoid errors in the determination of such. Part III The costs which are incurred in January 2017 on the salaries for those involved conducting the basic tests falls on research phase of development. This is the reason such cost should be recognised as it is spent and not before spending. This is what has been provided for in the journal on the costs which are research related (Peterson, 2002). This particular cost is, therefore, very key for any entity since it contributes to the overall value of the asset which is termed as intangible. February spending, however, is used in development purposes as it involves the actual improvement of the Two Rocks Limited. Such spending, however, did not result into a meaningful direction since the filter made was not successful, it could not perform to the required ability. This is the reason why it is stated in the journal that such costs should only be considered once they have been incurred and not before (Peterson, 2002). This is brought out by the uncertainty of the use of such costs being reflected in the final outcome of the investment in an entity. In March, however, there was the acquisition of fibre division of the company called Sand Hill Ltd for a cost of $330,000. This buying was to help Two Rocks Ltd to use the fibrous material produced by this company to improve on their filtration process. It is this fibre acquisition that made the Two Rocks Ltd to get patent for the fibrous compound that they were trying to come up with (Kieso, Weygandt & Warfi...