Intangible assets refer to the assets which are not physical in nature. Common intangible assets are intellectual property such as copyright, patent, trademark etc, and brand image, goodwill, employee relations etc. It is wrong to only consider the assets which are tangible in nature (Bryan et al., 2017). It is important to calculate the value of intangible assets to know the worth of a business.
Recognition and measurement of the intangibles are more difficult than the tangible assets. The recognition of an intangible assets are done by finding that the future benefits from an asset will flow to the company or the cost can be reliably measured.
Mixed measurement approach can be defined as an approach in which different measurement approaches are used to value the assets and liabilities. Whereas, in the single measurement approach only one basis of measurement is used for all the assets and liabilities.
There are benefits of using mixed measurement approach for the preparers of financial accounts. For example, when they measure the asset, if there is an active market they can choose fair value to record the asset but if there is no active market for the asset, then they can use historical cost for the measurement (Jarrett, 2019). Also, in the case of financial crisis, it will be inappropriate to measure the intangible assets on fair value due to volatility in the prices. Thus, there is a level of flexibility in the mixed measurement approach.
The annual report 2019 of Telstra shows the data of the goodwill and the intangible assets. It shows that the goodwill is measured at cost and it is not amortised whereas it is tested when there arise an indication of impairment or for impairment which is on an annual basis (Telstra, 2019). On the other hand, internally generated intangible assets consists of costs known as development costs and are made in design, and also for the testing of other IT products (Nichita, 2019) Amortisation of these assets are done on a straight line basis over the period in which they are useful.
These assets have a finite life. Telstra acquires other intangible assets as the combination of business. Also, it is acquired through the separate acquisition. At fair values, the measurement and recording of intangibles are done, specially the goodwill of the organisation (Petković et al., 2020). Whereas, for the intangibles which are acquired as a specific acquisition, measurement and recording is done at its cost (Tulvinschi, 2019). Therefore, this shows that Telstra is using m variety of approaches for the measurement of intangibles.
There are many problems faced when Telstra uses mixed measurement approach. The basic is that they cannot compare the financial reports of the organisations which use other measurement bases. There is also a problem called ‘additivity problem' faced in this approach (Sellers et al., 2018). In this case, on different bases the liabilities are measured whereas the sum of assets is measured as summation. Moreover, there is high possibility that the managers would select the measurement approach which best suits them.
The objective of general purpose financial reports is to provide information of the financial statements of the entity to the users. It us not an end to itself rather it is a means of communicating relevant and reliable information to the users like management and governing bodies, resource providers, party involved in the purchase of goods and services (Tucker & Hoque, 2017). When mixed measurement approach is used by Telstra, the objective of general purpose financial reports is fulfilled but not to a great extent. This is because the users can use the information about the intangible assets but not all the intangibles are measured on the same ground. It is hard to compare and understand the data.
According to an accounting theory, it was found out that the intangible assets management can voluntarily choose to record the identifiable intangible assets which are highly correlated with underlying economic factors than the regulated classes. This suggests that by restricting the choice of management to record intangibles will lead to reduction rather than improvement in the quality of balance sheet.
Positive accounting theory should be preferred as it explains and predicts the real world outcome and then translate into accounting transactions. Also, Telstra should use a mechanism known as legitimacy theory which supports the organisation in developing and implementing social and environmental disclosure in order to fulfil their social contracts. This also helps to achieve the objective and enables survival in a jumpy environment.
Bryan, D., Rafferty, M., & Wigan, D. (2017). Capital unchained: finance, intangible assets and the double life of capital in the offshore world. Review of International Political Economy, 24(1), 56-86.
Jarrett, J. E. (2019). Methods for evaluating the value of intangible assets. International Journal of Business and Data Analytics, 1(2), 145-155.
Nichita, M. E. (2019). Intangible assets–insights from a literature review. Journal of Accounting and Management Information Systems, 18(2), 224-261.
Petković, M., Krstić, B., & Rađenović, T. (2020). Accounting-based valuation methods of intangible assets: Theorethical overview. Ekonomika, 66(1), 1-12.
Sellers, R. D., Meckfessel, M. D., Jadallah, J., & Moeini Chaghervand, A. (2018). Variability of Accounting Restatement Measurement in Audit Quality Research. Available at SSRN 3216124.
Telstra. (2019). Annual Report. Retrieved from https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2019-Annual-Report.PDF
Tucker, B., & Hoque, Z. (2017). Mixed methods for understanding accounting issues. The Routledge Companion to Qualitative Accounting Research Methods, 301.
Tulvinschi, M. (2019). Recognition And Assessment Of Identifiable And Unidentifiable Intangible Assets. The USV Annals of Economics and Public Administration, 18(2 (28)), 99-106.
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