Radical changes are needed in company reporting to cope with the rise Essay

Radical changes are needed in company reporting to cope with the rise of intangible assets. Discuss - Essay Example 1. Ability to be separately recognised: Since the asset can be separately quantified, relative commercial transactions such as sale, transfer or exchange could be carried out, Further, the creation of an intangible asset is out of an agreement or other legal imposition, 2. Ability to produce future benefits: Software development expenses is example of an intangible asset that has the ability to produce future benefits. For the same reason, special distribution and selling rights, trademarks and intellectual properties ownerships also constitute intangible assets Intangibles can be acquired either externally or through internal means. Intangible assets acquired externally are through buying, transfer or leasing process and the internally generated ones are established by way of the companies’ own efforts and market reputation. The main aspect to be considered with regard to intangible assets is that it must be compatible to quantitative analysis and future benefits. Whether the intangible assets are self generated or acquired externally. If this parameter is not met the investment would be â€Å"recognised as an expense when it is incurred [IAS 38.68]1† and not as an intangible asset. The aspect of intangible asset which is self generated refers to determination of goodwill and its accounting treatment. In real effect, goodwill represents â€Å"the excess paid for a firm over its adjusted net asset value.†2 (p.992). The goodwill amount refers to the special ability of the firm to generate revenue by way of its current market standing and also its future earning capacity. Goodwill is only seen in the context of business mergers and acquisitions representing the difference between the purchase prices and the net value of assets acquired. The aspect of goodwill in accounting cannot be undermined because â€Å"when Philip Morris acquired Seven Up for a price of $ 520 Million, approximately $ 390 million of the purchase price represented goodwill,†3