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  • 1. As a consequence of the introduction of NZIAS 38 'Intangible Assets,' has relevant information been lost with regard to the treatment of accounting for goodwill? Discuss, providing examples where appropriate. (5 Marks) 2. Describe h

1. As a consequence of the introduction of NZIAS 38 ‘Intangible Assets,’ has relevant information been lost with regard to the treatment of accounting for goodwill? Discuss, providing examples where appropriate. (5 Marks) 2. Describe h Essay

NZIAS 38 5

Running Head: NZIAS 38

Revision instructions:

Dear Writer Could you change the provided example for question 1 into a New Zealand company please? Thanks.

Question 1

With the introduction of NZIAS 38 ‘Intangible Assets’ relevant information has been lost in relation to the accounting for goodwill treatment. In the definition of intangible asset although goodwill has been included, it recognition in the financial accounts incase of a revaluation is not allowed as per NZIAS 38. Entities in New Zealand that hitherto capitalized other intangibles like publishing titles, customer lists, and internally generated brands are required to exclude recognition of these items by IAS 38. For example, in the year ending September 2005, net asset or equity of Lion Nathan dropped to $A881.7 million when brand assets were not included in the balance sheet. $A2,493.5 million would have been reported depicting a deficit of $A1,611.8 that should have been included in the absence of the standard NZIAS 38. Consequently there was aloss of relevant information since some of the intangible assets like goodwill are not recognized. In the illustration the brand assets are not reported on the balance sheet (Lloyd, 2007)

According to NZ IAS 38 (2004), this owes to the fact that the brand name as an asset ceases to be generated internally but an asset which has been subjected to a market transaction that is external. Lloyd (2007) explains that amortization is applied to intangible assets with finite lives and needs an estimate of the useful life of an asset. The standard also calls for measuring of intangible asset after recognizing it initially at cost and subtracting any amortization that has accumulated and any losses resulting from impairment.

Zyla (2009) notes that the standard permits an intangible at its fair value to be revalued subtracting any impairment loss and any amortization. Nevertheless this can only be applied where an active market exists. Where an active market exists for identifiable tangibles this may make companies in a position to revalue assets and multiply their base for target of the safe harbor rules. The standard calls that assets excluding goodwill or assets with an indefinite life, that the entity does an assessment at every date of reporting of any asset that may be impaired (IASB, 2009).


In summary accounting for goodwill has not been depicted well in NZIAS 38 ‘Intangible Assets’ and therefore relevant information have been lost. Not disclosing the intangible assets in case there is a revaluation does not give the clear picture of the actual financial position of the firm at a given date and subsequently vital relevant information is left out in the accounting for revaluation of goodwill. It is important to note that accounting for goodwill has been adequately addressed in various paragraphs of the standard. The amortization does not cater for intangible assets with indefinite life like goodwill.

Question 2

Measurement and recognition criteria have been applied in the accounting treatment of research and development expenditure in the NZIAS 38 ‘Intangible Assets’ which has been covered in paragraph 21 to 23. An intangible asset is only recognized if, and only if; it is probable it is possible that the expected economic benefits that are attributable to the asset in future will flow to the entity, and its cost can be measured in a reliable way. According to Haldeman Jr, (2007), research and development expenditure has been catered for in this standard. Any cost accruing from development and research which is attributed to an intangible asset it is subtracted. Future economic benefits are used to describe the part of research and development because results into the accruing of extension in the assets (Lloyd, 2007).

Research and development results into the changing of the economic benefits expected from a given entity. Paragraph 22 states that an assess the probability of expected future economic benefits utilizing supportable and reasonable assumptions that are a representation of the best estimate of management of the outlined economic conditions that will prevail over the asset’s useful life. Any development and research is fully catered for in this standard. In paragraph 23, judgment is utilized by an entity to evaluate the certainty degree attached to the flow of economic benefits in future attributed to the asset use of the foundation of available evidence at the time it is recognized initially, giving enough weight to the external evidence. As explained although the asset is measured at cost any research and development is catered for and adequately recorded (NZ IAS 38, 2004).


Research and development expenditure treatment has been adequately covered in the measurement and recognition criteria. While anticipating any economic benefits in future, a measurement and recognition criterion acknowledges development that may be as a result of expansion on an existing asset. Consequently research goes hand in hand with development since there could be no development without research and economic gains from these have been anticipated and covered in the standard.


Haldeman Jr, R. G (2007). Fact, Fiction, and Fair Value Accounting At Enron

The CPA Journal; Nov 2006; 76, 11.

Lloyd A. (2007). Accounting for intangible assets. Business Review. Volume 9 No. 1

NZ IAS 38 (New Zealand Equivalent to International Accounting

Standard 38) (2004) Intangible Assets. Issued November 2004 and incorporates amendments up to December 2009

Zyla M. L. (2009). Fair Value Measurements: Practical Guidance and Implementation. NY: John Wiley and Sons.

IASB (2009). International financial reporting standards. NY: Kluwer.