AYB200 Semester 1 2020 1

ACCOUNTING STANDARDS AASB 138

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Accounting Standards AASB 138

In section 9 of the standard regulation, AASB 138, intangible resources, the businesses often use
or assume responsibility for acquiring, creating, retaining, or improving intangible assets along
with scientific or intellectual understanding. Design and execution of new procedures or
technologies, authorizations, proprietary information, business awareness, or patents (along with
brand titles and publishing patents). Like the opportunities to invest in tangible products like
structures and machinery (AASB 138 par. 9). Intangible expense is part of the 'capital' of the
business and is described by economists as 'made items that drive up the price of future
commodities.'
In the event management believe that investments can improve productivity, there are
management opportunities for investment in intangible manufactured goods. Whereas
measurable manufactured goods are output objects, intangible manufactured assets are one form
of competition (i.e., by innovations and approaches for practices such as advertisements and
promotions, entry to new markets, and enhancing work environment effectiveness) manufactured
goods.
Besides, the information and rights expressed in such intangibles allow the company to generate
revenue on its measurable plants and machinery.
Differentiating intangibles from Goodwill
The criterion for "distinguishable" intangible resources is to distinguish the immaterial assets
from goodwill, where goodwill is a potential economic advantage from assets that cannot be
personally established and acknowledged independently. The recognizable attribute (AASB138
par. 11) does not, therefore, have an intrinsic attribute
* Good Will is recognized only if it is obtained in a trade at an arms distance.
Intangible assets,
Purchased vs. naturally Developed should be registered as a resource at their cost for production
if an intangible produced internally is to offer potential economic benefits (AASB 138, par 9).
For examples. The patent at the expense of product creation or patent registration.
The Pharmatech company can use the following procedure in the identification of intangible
assets ·
 Initial identification of immaterial assets: the meaning and acknowledgment requirements
should be registered. Indeed, in the time it happened based on the factors, the costs of the
intangible should be known as costs:
1. Following the classification of income tax costs: as certain expenses are tax-deductible,
for example, R&D budget (up to 125% of value used)
2. Price does not fulfill the requirements for asset identification
3. Intangible costs are also invisible.
 Intangible Asset metric: must be reassessed using reassessment procedure costs after
original acquisition expense or R&D costs have been established (AASB 138 par. 10).

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Besides, at the close of the accounting period, the management checks the presence of an asset
deficiency (Cañibano, Covarsí, and Sánchez,1999). Research and development: four elements; o
Define R&D: study is the work that has been designed, not the commercial target, with new
information possibilities. Development: Implementation of research results on an enhanced
equipment/machine/service strategic plan etc. The business requirement is worried before
development.
It consists of two stages;
1. Research phase
2. Development phase
Early identification of R&D:
1. Production process costs recognized as e overheads incurred during the period expenses
2. Costs identified as expenditures during the time during which they exist and only returned if
potential economic gains are then assumed to be produced by values: cost and compensation
method (AASB par 12).
3. Several of the charges can be recognized as immaterial assets. In contrast, others can be
counted as expenses. In essence, the systematic capitalization approach Specified by AASB 138,
research overheads and expenditure must be identified in time for various costs. At the same
time, production expenses may be recognized as immaterial assets if they fulfill the requirements
for the concept and identification of intangible assets as well as the situation in AASB 138.
4. All overheads identified as immaterial assets: capitalization method or Eventual research and
innovation metric (Business.qld.gov.au. 2019). When production costs are defined as intangible
assets, how can they be measured? Re-assessment is restricted to trade assets; assets for
production do not trade in competitive markets, so the cost models are used. Therefore,
construction assets have to be 'less any amortization and depreciation loss' accrued). If asset
existence is limitless, it will not be amortized.
* Amortization happens if the asset is accessible for use, and the remaining value is expected to
be zero.
The research and development costs incurred by the company include;
Material 30th June 2019 30th June 2020 30th June 2021
Clinical Trials $2,000,000
Clinical Trials $ 1,000,000
Equipment purchases 1,000,000
S.A clinical Trials $ 1,200,000

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Journal Entries Debit credit

Clinical Trials $ 2,000,000
Cash $ 2,000,000
Clinical trials $ 1,000,000
Cash $ 1,000,000
Equipment Purchase $ 1,000,000
Cash $ 1,000,000

SA clinical trials $ 1,200,000

$ 1,200,00

Short term and Long-term Implications

Short term implications
 The short-term implications for the company is that increased research and
development expenditure will affect the company profitability of the company which
will lead to decreased returns.
 If the managers are remunerated based on the profitability of the company, this implies
that in the short term the managers will not receive any salary increase due to
decreased revenue.

Long term implications

 The company will have increased profits which will increase the profit of the company.
In this case the managers will get a pay hike. The difference between the present
income as well as the market price is relevant as the book value incorporates the
potential profits into consideration, so that it usually produces the long-term return on
R&D (Hunter, Webster, and Wyatt, 2005). All R&D is excluded from operating
revenues in the year it is spent, although revenues for Research and Development do
not take place until future times.

 R&D decentralized organizations have an RQ of 40% to 65% less than consolidated

R&D organizations. This indicates that per R&D dollar the company produce lower
income, income and current value. Decentralized R&D creates inventions that
influence subsequent developments

The development of the new antibiotics will require new accounting practices, which will
involve the issues of sustainability and procedure to internalize the externalities caused in the
production of the drugs. One of the common cases of government intervention a particular drug
is manufactured or used and confers advantages or expenses on others not provided for by the

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market value of the commodity. External costs [include] the unpaid labor expense, which is
placed on external parties by such trade-offs (Unerman, Bebbington, and O’dwyer, 2018). To
emphasize the magnitude of these market distortions and inform assessments as to how recurrent
external costs can be handled, accurate, and useful information about environmental expenses is
essential.
The tradeoff between research and development and accounting regulation AASB 138 can be
achieved when all the requirements mentioned here could be established: a. An intrinsic asset
resulting from the development (or production process of an existing venture). The economic
viability of achieving the intangible resource for use or marketing; b. its plan to finish and then
use or sell the valuable asset; c. Their right to use or sell the immaterial property; d. How current
assets would likely produce economic advantages for the future; e. Availability for production
and use of or selling of intangible properties of sufficient technological, financial, and other
assets.
The AASB regulations available to the company are enough to guide the pharmaceutical firm in
accounting for intangible assets. There is no need for other new laws to guide the company in
accounting for intangible assets.

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References
Aasb.gov.au. 2015. ACCOUNTING STANDARD AASB 138 INTANGIBLE ASSETS. [online]
Available at: <https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-
15_COMPoct15_01-18.pdf> [Accessed 30 March 2020].
Business.qld.gov.au. 2019. Research And Development (R&D) | Business Queensland. [online]
Available at: <https://www.business.qld.gov.au/running-business/growing-
business/research-development> [Accessed 30 March 2020].
Cañibano, L., Covarsí, M.G.A. and Sánchez, M.P., 1999. The Value Relevance and Managerial
Implications of Intangibles: A Literature Review1. Proyecto Meritum.
Hunter, L., Webster, E., and Wyatt, A., 2005. Measuring intangible capital: a review of current
practice. Australian Accounting Review, 15(36), pp.4-21.
Unerman, J., Bebbington, J. and O’dwyer, B., 2018. Corporate reporting and accounting for
externalities. Accounting and business research, 48(5), pp.497-522.

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