An Identifiable Non Monetary Asset Without Physical Substance Accounting Essay

In this inquiry foremost the managers have a argument in the intervention of the movie library, distribution rights and understandings. There are five types of intangible assets. They are market related, client related, artistic related, contract based and technology-based intangible plus. Motion pictures, movies, music picture and telecasting plans falls under artistic -related intangible assets. Under the IAS 38 an intangible plus must fulfill the standards which are the cardinal features. They can be summarized as

The resource controlled by an entity from where its derives future economic benefits,

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Lack of physical substance,


Intangible assets are developed internally and are besides acquired in a concern combination. They are recorded at their just value in the instance of acquisition in a concern combination, while some assets are recognized at the cost incurred in the stage of development in the instance when they are internally generated. The internally generated intangible assets are of two stages called the research stage and the development stage. Research stage includes all activities and costs incurred before the plus is commercially executable, while the development stage is incurred after the plus is established to be executable commercially. All costs in development stage are capitalized while costs incurred in research stage are expensed.

In this inquiry, the distribution right is the root which controls the future economic benefit of the movie library. A movie library deficiencies in physical substance. Therefore the argument in the intervention of the movie library has been identified as intangible assets. In this inquiry, the managers say that the distribution rights, movie library and understandings are all self refilling assets without any depreciable sum. But their statement is incorrect. The position of the managers is incorrect. Because these assets are non self-replenishing assets as they can be amortized and found to be holding finite utile life.

Cost theoretical account:

IAS 38 permits the usage of either the cost theoretical account or the reappraisal theoretical account for each category of intangible plus. The company must take either one as their accounting policy.

Cost theoretical account: after initial acknowledgment the intangible assets must be carried at cost less accrued amortisation and impairment losingss.

Reappraisal theoretical account: after initial acknowledgment, the intangible plus should be carried at a revalued sum which is its just value at the day of the month of reappraisal less subsequent accumulated amortisation and subsequent accumulated impairment losingss.

Here the intangible assets of the company should be measured by the cost theoretical account. Because the transporting sum of the cost theoretical account is cost subtractions accumulated amortisation minus the damage losingss. This method is suited because the cost is a historical figure and does non alter. On the other manus, the entity needs to calculate amortisation on the intangible plus. The pick of a suited depreciation method such as the straight-line method is a affair of professional judgement and entity policy. In add-on, the entity needs to execute an impairment trial and compute damage losingss ( if any ) . So the managers are advised to utilize the cost theoretical account for measuring of the intangible assets in their company.


One of the issues in the inquiry is that whether the plus can be amortized or non. Allocating the cost of intangible assets is called amortisation. The accounting footings used by companies to distribute the cost of the assets throughout its utile life are depreciation and amortisation. These both provide a more accurate image of the fiscal wellness of the companies. Although they are frequently used interchangeably, they refer to different types of assets. Amortization is used for intangible assets such as good will, patent, licence, hallmark or a gesture image movies and depreciation is used for touchable assets like vehicle, machinery or warehouse. The accounting for intangible assets depends chiefly on its utile life which is of two types. Useful life can be defined as the shorter of legal life and economic life. There are finite and indefinite. If the utile life is finite so the plus can be amortized and if it is indefinite it can non be amortized.

Finite utile life: The period during which the needed plus or belongings is expected to be useable. It is amortized.

Indefinite utile life: The transporting value of the assets may non be recoverable and they are non amortized.

For an intangible plus with a finite utile life, the capitalized cost is allocated less any estimated residuary value in which the plus is expected to lend to the company ‘s revenue-generating activities. This requires that we determine the plus ‘s utile life, its amortisation base ( cost less estimated residuary value ) , and it is the appropriate allotment method as like the depreciation in the intangible assets. The intangible assets in the company such as the gesture image movie is seem to be finite and as an advice, the managers should amortise the assets as their utile life is finite in nature.


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