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Generally, fixed assets are the assets that can not be changed to be cash easily. Fixed assets are also called non-current assets. It is the oppose side of current assets. Current assets are also called liquid assets. Normally, fixed assets are considered as the assets that are can not easily moved. But its clearly definition is that the assets that can be used or lasted for more than one year, which are considered as fixed assets. Many assets that can move or can be moved are also considered as fixed assts, such motor cars for a delivery company, planes for an airline company, and so on. So we must find a precise definition for fixed assets. Fixed assets can not be sold to terminal users directly. As stated in International Accounting Standards, fixed assets are assets whose future economic benefit is probable to flow into the entity, whose cost can be measured reliably.
There are many types of fixed assets, such as land and buildings, motor vehicles, computers, furniture, office equipment, fixtures and fittings, plant and machinery.
Land and building for an enterprise that can not be sold to its customers directly and the land and building can provide working space for the enterprise to let the enterprise make products or provide services.
Motor vehicles when are used as delivery vehicles are fixed assets too. Because they are not sold directly to the customers, but as the delivery means to provide delivery service.
Computers, furniture, office equipment, fixtures and fittings, plant and machinery that are used as one company's vehicles but not as the company's products are also fixed assets and their values are kept stable, which is different from products or services.
2. Answer for Question (b)
(°) Definition and explanation for Intangible Assets
Intangible Assets are the assets can not be seen, touched or measured, they are not monetary assets. Intangible Assets are separate assets which are created by a longtime and/or atomic effort. There are two types of Intangible Assets. One type is legal intangibles which contain copyrights, trade secrets, goodwill, patents, trademarks, and so on; another type is competitive intangibles which contain collaboration activities, knowledge activities, leverage activities, and structural activities and so on. According to the international standards2, intangible assets are defined as identifiable assets controlled by the enterprise without their physical substance, bringing future economic benefit to the company.
Legal intangibles all are determined by law and competitive intangibles' primary source is Human capital.
(â…±) Problem in accounting for the Intangible Assets and the reasons for this
Because the Intangible Assets can not be seen, touched or physically measured, so there are problems in the process of calculating its value. Among the problems, the most important and essential thing to be done is to determine whether an intangible asset is identifiable or unidentifiable. Is identifiable, unidentifiable, or goodwill
The following issues may be concerned in the Intangible Assets accounting process:
Are the assets acquired or developed internally
Do the assets have an indefinite or finite useful life (and residual value of the assets?)
Is subject to amortization or impairment testing
Should be expensed or capitalized
The reason why we should consider these points is as below:
(1) The intangible assets can not be seen, so to fix their value is very complex, so the first step is to indentify if the assets are intangible and whether the assets are identifiable or unidentifiable;
(2) The identification of whether the assets are identifiable or unidentifiable is the basis for further analysis and calculation for the intangible assets' value.
3. Answer for Question (c)
Enterprises account for intangible assets much as they are accounting for other natural resources or depreciable assets. The cost of intangible assets is often automatically allocated to expenditure in the process of the assets' useful life or legal life, whichever is shorter, and the life will not be allowed to exceed certain years. The process of allocating the expenditure of intangible assets to expense is called amortization, and companies almost always use the straight-line method to amortize intangible assets.
It is very often that considering the intangible assets as Goodwill.
We can use Income Approach to estimate the intangible value. Because the income by the intangible assets can indicate the value of the intangible value. For example, if you have a product brand, this product brand can bring you about 100,000 Dollars one year, but the same kind of products without your brand and has the same quality only can bring 20,000 Dollars to the enterprise owner, all other factors are the same, we can say that your brand, which is an intangible assets values 80,000 Dollars.
We can sell an intangible asset in market, and can see how much can be got by selling the intangible assets. The higher price the intangible asset is, the higher value the intangible has.
As stated above, the intangible assets are from long time's continuous effort, in the process of the intangible assets formation, it must cost much money or other things that can be calculated by money. So we can calculate the expensed cost of the intangible assets' formation, then get the intangible assets' current value.
Direct Intellectual Capital methods (DIC)
We can estimate the intangible assets' value by identifying its different components. Once the components are determined they are able to be evaluated directly, either as an individual or as an aggregated coefficient
Market Capitalization Methods (MCM)
We can calculate the differences between an enterprise's market capitalization and its stockholders' equity as the value of its intangible assets or intellectual capital.
Return on Assets methods (ROA)
Anenterprise's average pre-tax earnings for a period of time are divided by the average tangible assets of the enterprise. The result is that an enterprise ROA that is then compared with its industrial average level. The differences are multiplied by the enterprise's average level tangible assets to calculate an average annual earning from the Intangibles. We can divide the above-average level earnings by the enterprise's average level an interest rate or cost of capital; one can derive an evaluation of intangible assets or intellectual capita value.
Scorecard Methods (SC)
The intangible assets' various components or intellectual capital are classified and indicators and their indices are reported and generated in score cards or as graphs. SC methods are a little same as DIS methods, without that no estimate is made of the money-value of the Intangible assets. A composite index may or may not be generated.
We can use the intangible assets trading history to determine the intangible assets' value. Because if the intangible assets has been transacted before, it must have a monetary value. So we can identify the intangible assets' current value by the trading history.
The proponents of the approach say that if goodwill is as significant as asset as many believe, it should belong on the balance sheet. One problem within capitalization of goodwill is to determine the proper amount of capitalization. Nowadays practice follows the residuum method.
One way to correct the misuse of goodwill is by the hidden assets method. By this approach, the excess purchase price that enterprises pay for fair market value of the assets is just for assets that are hidden from the balance sheet. Hidden assets ought to be identified and recorded on the balance sheet, then amortized for their useful life. If they were, goodwill account may be much smaller than practice at presnet and financial statements may be more useful.
(10) Role within value chain
An intangible asset must exist in certain industrial business. Different roles in certain industrial business values different. For example, in many technological fields, the patent is the most important intangible asset. So the patent in technological field counts more.
(11) Existing market footprint.
If the market that intangible assets exist is very stable. We can analyze the existing market footprint to identify the intangible assets value.
(12) Write-off Method
By using this kind of method, goodwill generally is written off immediately against the equity section of the stockholder, and the earnings are retained generally. Some people say that good will dose not belong to measurable and it dose not have true future value. It ought to be written off against stockholder's equity.
And we must make the intangible analysis according to the IAS and IFRS; here are some of the considerations for the IAS and IFRS.
As stated in IAS 38 the benchmark treatment for measurement, subsequent for the initial acquisition is the cost any accumulated impairment loss and less accumulated amortization.
As stated in IAS 36, according to the Standard, impairment of Assets, intangible assets has to be reviewed for impairment. Only identifiable intangible assets can be revalued. This must be undertaken according to a term of 'active market' and once this has be done; the enterprise is necessary to make regular revaluations.
Bothe IAS 22 and 38 demand that the intangible assets should be amortized on a systematic basis over the best estimate of their useful life. There is a disputable presumption that this useful life would not exceed certain years. Intangible assets are able to have more useful lives; otherwise, the IAS has not permitted an enterprise to subscribe an indefinite useful life.