Accounting Treatments for Identifiable Intangible Assets
purposes of this essay, the accounting treatments for identifiable intangible assets should involve the amortisation method, the useful lives of the assets and the treatment for their recoverable amounts. The following paragraphs will describe their accounting treatments for identifiable intangible assets, discuss the possible reasons for the treatments adopted by each of them and identify similarities and differences in the treatments across the three companies.
First of all, it can be seen from the financial report of Telstra that the dollar value of intangible assets was A$3,012 million at 30 June 2001. Excluding the goodwill of A$1,548 million, the identifiable intangible assets were A$1,464 million, which included patents, trademarks, licences, brand names, and customer bases (Appendix 1). According to note 1.20(b) to the financial statements, the costs of such assets were amortised using the straight-line method over their useful lives, which averaged 12 years for financial year 2001. The recoverable amounts were reviewed annually and the carrying amount was adjusted down and charged to the statement of financial performance when necessary. However, the research and development costs and the software assets developed for internal use were put under the item of other assets instead of intangible assets (note 1.21). On the other hand, note 1.1 states that its financial report was prepared in costs.
According to AASB 1021, the depreciation or amortisation method should be able to reflect the pattern where the entity consumes the future economic benefits of its assets (Knapp & Kemp, 2003, p.509). It may be because of the difficulty of estimating the pattern of consumption of economic benefits from aforenamed assets, which includes patents, trademarks, licences, brand names, customer bases, research and development costs and software, that they were amortised using the straight-line method in Telstra’s practice. Furthermore, the useful life of an asset should be estimated considering the factors of expected physical wear, obsolescence and legal or other limits on the use of the asset (Knapp & Kemp, 2003, p.509). Though the useful lives of some intangibles were not given individually, it can be believed that they were estimated on consideration of the legal limits of intangible assets. Besides, as required by AASB 1010, the intangible assets of Telstra are reviewed annually and reduced their values where applicable.
Second, according to its financial report, Land Lease had intangibles of $2.6 million other than goodwill on 30 June 2001, which consisted of a patent $ 4.2 million that was being amortised over 3 years. The basis of amortisation was the straight-line method. Moreover, the costs of IT systems and mortgage servicing rights were put under the name of other assets instead of recording in intangible assets. The notes also states that the financial statements had been prepared on historical cost and did not take into account fair values of non-current assets.
Land Lease is a real estate investment manager company. Due to its range of services, it may be believed that its intangible assets were recorded on cost basis because it was assumed to be more reliable. The use of [next page]