Classifying assets is a crucial aspect of managing a business and it is important they are classified accurately according to the relevant accounting standard. As a result it is essential that businesses are conscious of the rules in AASB 138.
What is AASB 138?
AASB 138 is an accounting standard set by the Australian Accounting Standards Board (AASB) that outlines the requirements for recording intangible assets that businesses must comply with. The AASB is a government agency that provides the accounting standards that businesses are obliged to follow when preparing financial reports.
What is an intangible asset?
An intangible asset is an asset that is identifiable, non-monetary and does not have a physical substance. An identifiable asset is one that is separate from the company or results from a contractual right. Some key examples of intangible assets are patents, franchise, software, copyrights, customer lists and mortgage servicing rights.
When are intangible assets recognised and measured?
Under AASB 138, businesses should only recognise intangible assets if it is likely that there will be future economic benefits and the cost can be accurately measured. AASB 138 also provides that businesses should measure intangible assets at cost. Following the initial recognition businesses can then select either the cost model or revaluation model to measure the cost.
There is certain information listed in AASB 138 that businesses are required to disclose in their financial reports.
Importance of AASB 138
It is crucial that businesses comply with the standard as it is mandatory and a failure to follow AASB 138 can result in prosecution. How a business recognises and measures their assets can affect the business value. Additionally, if the information is not recorded then it can impact tax and profit.
Get in touch with our team if you need any advice on a AASB 138 related issue.