Accounting Treatments for Identifiable Intangible Assets
of a straight-line basis may attribute to the difficulty of estimating the pattern of consumption of economic benefits from its intangible assets. The various useful lives, however, could be determined relying on the length for which Land Lease was going to use them.
The third company to be analysed is Amalgamated Holdings Ltd (AHD). The financial statements show that it possessed $11,437 thousand intangible assets, the identifiable intangible asset among which is a liquor licence of $82 thousand at 30 June 2001. It can be seen from note 17 that the liquor licence was not amortised during the financial year 2001. Research and development expenditure was expensed as incurred and thus not included in intangible assets. The financial statements had been prepared on the historical costs basis, not concerning the fair values. The carrying amount of identifiable intangibles was reviewed at balance date, the excess amount of which over the recoverable amount, if any, would be written off as an expense.
As described above, Amalgamated Holdings recorded its intangible assets at costs instead of fair values probably due to the belief that the former may be more reliable. The treatment of carrying amount is subject to the requirements of AASB 1010. However, the possible reason for not amortising the liquor licence could be the belief that it has an indefinite useful life.
In summary, comparing and contrasting these treatments adopted by the three companies above, there are both similarities and differences in the treatments. On the one hand, they all prepared their financial reports on a historical costs basis, and reviewed the carrying amounts of their identifiable intangible assets and write them down when they were greater than the recoverable amounts. Moreover, any of the three companies did not recognise the research and development costs as identifiable intangibles. On the other hand, both of Telstra and Land Lease amortised their identifiable intangible assets on a straight-line basis over their useful lives, while Amalgamated Holdings did not perform this amortisation for financial year 2001. Also, there is a slight difference between the useful lives determined by Telstra and Land Lease. The former amortised its intangible assets over the period of expected benefit based mainly on their legal lives, while the latter amortised its patent over 3 years, which was much shorter than its legal life.
Arguments about these accounting treatments in companies’ reports
In the next part, both positive and negative sides of the arguments with respect to the recognition and subsequent amortisation of identifiable intangible assets in these three companies’ annual reports are to be discussed. Analyses would be undertaken regarding to two sections: recognition and amortisation of identifiable intangible assets.
Firstly, an asset is recognised in the statement of financial position when and only when it meets the recognition criteria (Greaves et al. 2003, p.3-7). As per ED 49, an identifiable intangible asset is to be brought to account where (a) the future benefits of the identifiable intangible asset are probably to eventuate, and (b) it possesses a cost or other value that can be measured [next page]