Intangible Asset Essay

ABSTRACTThe decision of this study is to examine several youngs when dealing with nonphysical addition additions. By bureau secondary enquiry, relevant evidence from m all rootages was selected, taxd and organized into three master(prenominal) points, which argon explore and information cost, blot military rating and the risk of in app arent addition in fiscal statement in simile with securities industry and book value. The evidence includes statistical data and expert opinion. The research results that nonphysical summations give a strong cushion to the party if they are non bar appropriately base on the accounting standards. Based on these findings, it is argued that impalpable plus would prompt participations deed if in that location are misjudgments in the valuing of these assets.IntroductionFinancial statement has a signifi whoremongert role in businesses system in due to transparency of beau mondes pecuniary present in the businesses environment. The purpose of financial motif is to give important information about(predicate) any changes in guilds performance that is recyclable for a wide range of users in making decision making in arrangement to defy investment in that particular company. According to FASB that is stated in Canibano, Garcia-Ayuso, & Sanchez (2000, p.102), financial statement should provide a useful information that will benefit to any potential investors and creditors to make further investment, credit and similar decision. Therefore, any outcome that will affect companys performance either toast or futurity should be presented in this annual report. During last 20 years, expansion in technology, economic system and people knowledge comport brought many changes in businesses environment which addition the use of media due to much than competition mingled with companies and companys feasibility in the future. receiv able all these changes as stated in Canibano, Garcia-Ayuso, & Sanchez (2000, p.102) the resource of wealth and future economic benefit is not from material harvestingion or tangible asset but from investing and management of intangible asset. As delimit in paragraph 8 of AASB 138 that is noted in Picker et al (2006, p. 313) intangible asset is an identifiable non monetary asset without physical center field. There are devil main forms of intangible asset, first level-headed intangible much(prenominal) as trademark, patent, brandand sepa value thing that defensible in the court and the second one is competitive intangible such as knowledge activities and other activities that contain a direct touch on and effectiveness to companys performance (Wikipedia, 2010, accessed 15/05/10). impalpable asset is one of accounts that should present in the financial statement this is however, by place intangible assets in the financial statement, this report would be less enlightening because they raise the difficulties of estimation of grocery value and book v alue which arse affect the companys performance. It can be argued that there are some issues that arise when dealing with internally generated assets. Therefore, in this essay the creator will discuss possible issues that can arise in intangible asset such as research and phylogeny cost, brand valuation and the risk of intangible assets in financial report in relation with commercialise and book value.R&D costIn guild to expand intangible asset, companies need to guide to a greater extent money in research and development (R&D) due to foodstuff competition to get more pelf. This expense is relatively expensive and continuous until the firms can find a new finding in intangible asset that can emend companys performance. This statement is strengthened by Canibano, Garcia-Ayuso, & Sanchez (2000, pp.108-109) argument which states that betwixt R&D and future economic benefit had not been corroborate thoroughly because there were no confirmation that can be fix in relation wit h expanding research and development a new output can lead future improvement in the companys performance. Changes in the R&D can cause a divergences between amplification each year and also enlarge the difference between cash flow that is actually generated by firms and emolument that is stated in financial statement because a new product of the research is about to be commenced and generated revenue later (Wrigley, 2008, p.258).Furthermore, in determining research and development cost, this activity will lead to greater amount of expense in balance because when any spending for research incurred, it will be record as expense and it will affect companys performance which can be a huge disadvantages for companies. If there are more expense that company generates as a result of research and development in one accounting period, it will decrease value of profit which lead to a negative prospect to investors because the investors will start to mistrust with the companysperformance if they see more expenses than profit during the year. An typesetters case arises from Sigma Pharmaceuticals Limited (SIP) that was developing a new product that have a purpose to measure carbon gas emission in order safe the environment (Sigma Pharmaceuticals Limited 2009, p.5).Based on SIP sum-up of complex accounting policy, R&D cost would be capitalised if the research bring a future economic benefit or can be sold to other parties (Sigma Pharmaceuticals Limited 2009, p. 54). This means that SIP would spend a lot of money to make this research success and able to generate profit but it is more expense would be generated during this research that has possibility to reduce the profit in that year. Another significant slip is from Rolls-Royce Company, in 1960s because of R&D expenditures Rolls-Royce Company couldnt make profit (Yardimcioglu 2008, p.91).This explanation can be conclude that even companies increase their research and development to find a new intangible asset suc h as patents that have expectation to bring more profit to the particular corporation, the firms still do not have control to this expectation because of uncertainty in the future economic benefit. It also gives negative impact to firms performance in investing activities because it will affect the investors confidence to put their investment in a particular companys.Brand valuationBrand valuation has appeared as issues that arise from bar intangible asset in financial report of companies. This is because of the deficient of perceptive and evaluation from accounting standard in measuring brand in a firm that mostly lead to uncertainties between goodwill and other intangible assets. Brand can be defined as a unique symbol or trade mark that is used to distinguish goods and services differently from its competitors (Tollington, 1998, p.180). The problem that occurs from brand as intangible asset is from useful action of it because brand does not have a frozen life which can lead t o misjudge of indefinite and definite life of other intangible asset (Seetharaman et al, 2001, p.247). Another problem that arises from brand measure is the difficulties of prediction in maintaining the value of brands in a period of time, for example, closely known brand like Ferrari, Marlboro and Coca Cola mostly have a stable value if compare with forgotten brand that whitethorn have less value (Seetharaman et al, 2001, p.247).In the most case, it has been debated that the value of brand asset could be measuredappropriately because in order to evaluate brand value, the company will use relief from royalty. However, Royalty rate is not always available and often the rate used is based on the companys decision rather than reliable source in that particular company. If the royalty rate is too high, it could be annul the companys profit that could earn (Sinclair & Keller, 2007, accessed 16/05/10).Risk in financial statement. intangible asset asset that takes a place in financial st atement would create significant risk in relation with companys performance. This is because the values of intangible assets have not exhibited in the financial report due to lack of cadence on intangible asset such as trademark, knowledge of employees and development of technology. An example of the risk that is reflecting the difficulties of measuring intangible asset value is from Nokia Corporation. According to the data from Yardimcioglu (2008, p.91), financial position that stated on financial statement in 1999 was US$11 jillion of total asset, liabilities were US$5.3 billion and residual cost US$5.7. In 2000, Nokias market value was US$190 billion and made US$183 billion differences between book value and market value, and this differences arise because intangible asset that Nokia possessed. This difference should be stated in the financial statement, but after one year Nokias market value has decreased to US$97 billion and if the difference of market and book value was stat ed in the financial position, Nokia would lose profit by US$86 billion.Another example of the risk of intangible asset in financial statement is Rolls Royce Company this company has suffered a loss in 1960s that lead to serious financial issues because of transfer of more sources to R&D process (Yardimcioglu, 2008, p.91). Based on these two examples, measuring intangible asset is quite difficult because ,,, it is impossible to total the deficiency between book value and market value in consequence of taking the intangible assets into financial statements (Yardimcioglu, 2008, p.91). In conclusion, there are some issues that arise from valuing of intangible asset in a corporation.This issue is including uncertainty of research and development cost that still cannot be determine to make future economic benefits, brand valuation because inadequate measurement for this intangible assets and the risk of putting intangible asset in financial report. Companies should do some actions tosol ve this problem that might be useful for companys management or even for investors who are spontaneous to invest their money to the company. First, maximise the use of intellectual property by expanding only small proportion of patents. Second, introduce a new product to the market that will possibly generate an innovation and third, technologies involvement (Hand & Lev, 2003, pp. 511-512).ReferencesCanibano, L, Garcia-Ayuso & Sanchez, P 2000, Accounting for Intangible A Literature Review, Journal of Accounting Literature, vol.19, pp.102-130. Hand, J, R, M & Lev, B 2003, Intangible assets values, measures, and risks, Oxford University Press, London, accessed 14/05/2010, http//books.google.com.au/books?id=RmFLUk7NydQC&printsec=frontcover&dq=intangible+assets&source=bl&ots=1QtSgbhUPK&sig=Nsy8mguyyw6tV8-FUAqpWi6pzVw&hl=en&ei=jNfsS96tM47U7APH_tiMBg&sa=X&oi=book_result&ct=result&resnum=7&ved=0CDoQ6AEwBgv=onepage&q&f= mendacious Picker, R, Leo, K, Alfredson, K, Pacter, P & Wise, V 2006, Australian Accounting Standards, John Wiley & Sons, Queensland, Austalia, Seetharaman, A, Azlan Bin Mohd Nadzir, Z & Gunalan, S 2001, A Conceptual Study on Brand military rank, Journal of Product & Brand Management, vol.10, no.4, pp.243-256. Sigma Pharmaceuticals Limited 2009, Annual Report 2008-2009, accessed 14/05/2010, http//sigma.ice4.interactiveinvestor.com.au/Sigma0901/Annual%20Report/EN/body.aspx?z=1&p=-1&v=2&uid= Sinclair, R & Keller, K, L 2007, Determination of Fair Value of Intangible Assets for IFRS report Purposes, International Valuation Standards Committee (IVSC), pp.1-6, accessed 14/05/2010, http//www.ivsc.org/pubs/comment/intangibleassets/06_keller.pdf Tollington, T 1998, Brands the asset definition and recognition test, Journal of Product & Brand Management, vol. 7, no. 3, pp. 180-192. Wikipedia 2010, Intangible Asset, accessed 14/05/2010, http//en.wikipedia.org/wiki/Intangible_asset Wrigley, J 2008, Discussion of What financial and non-financial information on in tangibles is value-relevant? A review of the evidence, Accounting and Business Research, vol.38, no.3, pp.257-260. Yardimcioglu, M 2008, The Risk of Intangible