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As Previously Elaborated, Accounting Treatment Primarily Depends Upon The ...

As previously elaborated, accounting treatment primarily depends upon the determination of the life of an intangible asset, more specifically whether it has an indefinite or finite measurable life.
All intangibles are governed by the same sets of disclosure requirements. Accordingly, financial statements should indicate the useful life or amortisation rate, amortisation method, gross carrying amount, accumulated amortisation and impairment losses, reconciliation of the carrying amount at the beginning and the end of the period, and the basis for determining that an intangible has an indefinite life
Apart from these requirements, the differences, detailed below, between US GAAP and IFRS in the treatment of Research and Development costs, Brands, Trade Marks and Patents, also need consideration.
a) Treatment of Research and Development Costs and Brands
Research and Development Costs
IFRS procedures call for expensing of all research cost. Development costs are however assessed for valuation of long term benefits and, amortised over their determined benefit period. Capitalisation of development costs is allowed only when development efforts result in the creation of an identifiable asset, e.g. software or processes, whose beneficial life and costs can be measured reliably. If however a Research and Development project is purchased, IFRS provides for the treatment of the whole amount as an asset, even though part of the cost reflects research expenses. In the case of further costs being incurred on the project after its purchase, research costs will need to be expensed out while development costs will be eligible for capitalisation, subject to their meeting the required criteria.
US GAAP however stipulates that all Research and Development costs be immediately charged to expenses. Certain development costs pertaining to website and software development are however allowed to be capitalised. Research and Development assets, if acquired are valued at fair value under the purchase method. However if the assets do not have any alternate use they are immediately charged to expense.
Both PWC and publications opine that US GAAP will most probably move towards the IFRS position on Research and Development as part of the short term convergence exercise.
Brands
The treatment of Brands is similar under both US GAAP and IFRS norms.
It has been specifically clarified that the value of brands generated internally should not be reflected in financial statements. In case of brands obtained through purchase or acquisition the value of the brand will have to be computed at cost or fair value and it will need to be determined whether the life of the brand is indefinite or finite.
Brands with indefinite lives will need to be subjected to rigorous impairment tests every year, and treated like goodwill.


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