Technology Enterprises Ltd: Significant Features Of AASB

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Question :

Consider and discuss the compliance of the AASB 138 for recording of the intangible assets in the books of account. In order to make the key understanding regarding the subject a case study of Technology Enterprises Ltd should be considered.

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Answer :



This report reveal the compliance of the AASB 138 for recording of the intangible assets in the books of account. To establish an alignment between the domestic reporting frameworks and the international reporting frameworks in the rapidly changing economic environment, it is necessary for every organisation to comply with the required laws and accounting standards. In this report we will discuss the provisions of AASB 138 and their role in depicting the true and fair value of recorded assets and liabilities in the books of accounts and in showing the ability of company. For making the key understanding regarding the subject a case study of Technology Enterprises Ltd has been considered. The case consist the queries regarding the internally generated intangible assets and its cost. The report demonstrates the significant features of AASB 138 and the legal obligations in the company’s accounting and recording framework. 

Answer to question no- 1


  • For proper treatment of accounts of Technology Enterprises Ltd. For intangible assets it is required to ascertain the fact that whether the generated assets of the company falls into the category of intangible assets or not. The provisions of AASB 138 (equivalent to the requirements of IAS 38) are needed to be examine and check out, which are given below:
Relevant paragraph of AASB 138Requirement set by the paragraph
  • Paragraph 9
The intangible asset is defined by this paragraph. According to the definition an intangible asset involves the maintenance, acquisition, enhancement or development of scientific or technological knowledge in the category of items specifically considered as intangible asset (Denicolai, Cotta Ramusino,  & Sotti, 2015).

  • Paragraph 18
In the paragraph the requirements to fulfil the recognition criteria for the asset in financial statements to be approved by the definition of intangible assets 
  • Paragraph 21
An asset is to be met with the following conditions of recognition criteria:
The intangible asset has the cost which can be measured by the organisation with the reliability and 
Entity has certain profitability of “expected future economic benefits” due to the intangible asset.
  • Paragraph 22
The management uses the reasonable and supportable judgements to determine the profitability of “expected future economic benefits”. It is taken by the best estimation of upcoming economic conditions. 
  • Paragraph 23
The management judgements are used to ascertain the above discussed profitability by giving favourable weight to external evidence.

  • In the case of Technology Enterprises Ltd, in June, 2018 they have a new project which is related to method of recharging batteries. The expectations of company are for next 10 years regarding the economic benefits from such technology. The incurred cost in the establishment of technology has also been disclosed by the company. With the help of best judgement of management the profitability of “expected future economic benefits” can be determined.
  • The project established under the organisation based on the technological and scientific knowledge which makes it eligible to be an intangible asset as per the definition defined under paragraph 9. Also the asset can be identified as an intangible asset because as per the conditions of recognition criteria mentioned under paragraph 18 and 21, this is an Internally Generated Intangible Asset.


Relevant paragraph of AASB 138Requirement set by the paragraph
  • Paragraph 24
The intangible asset which is internally generated is required to be recognised on cost.
  • Paragraph 52
To ascertain the cost of internally generated intangible asset, the both research and development phase of such asset are required to be distinct. 
  • Paragraph 53
If it is impossible to distinct the development phase from the research phase of asset then the whole incurred cost on the generation of intangible asset shall be treated as it caused due to research phase (Senaratne, & Gunarathne, 2017).
  • Paragraph 54
The cost incurred in the research phase of the project shall only be treated as the revenue expenditure. 
  • Paragraph 56
The expenses which are incurred in the search of alternatives of the project shall be treated as an activity of research. 
  • Paragraph 66
The cost generated in development activities are the cost which are incurred due to the engaged services and materials during the establishment of intangible assets.  
  • Paragraph 67
The cost of projection of an internally generated intangible asset does not include the cost incurred in the training of the staff and personnel of company to learn the operations of asset. 

  • The recognition of cost is significant as per paragraph 24, to state the value of asset for $400000 is wrong in the opinion of the CEO. The recognition of asset is required to be based on the development cost only (Auditing and Assurance Standards Board (2013).
  • This given table reveals the details of the items which need to be capitalized (Auditing and Assurance Standards Board., 2013).
DetailsPhasesCapitalization allowed or notRelevant paragraph of AASB 138Capitalized amount
Cost of time spent searching for evaluating material alternative : $10,000Research phaseNo560
Cost of design model and construction of prototype: $70,000Development phaseYes66$70,000
Cost of time spend on training for new design: $20,000N/ANo670
Amount of cost for the integrate generated assets$70,000

 (Auditing and Assurance Standards Board., 2013)

Answer to question no-2

The rules and obligations mentioned by AASB 138 and IAS 38 are quite similar to each other. The company follows such rules and regulations to make its legal compliances and accounting reporting much better and favourable as per the obligations. Both the standards have their own guidelines which are necessary and obligatory for the companies to manage their books of accounts and also mandatory to recognise and disclose the intangible assets into the accounts books. To comply with the requirements of IAS 38, the provisions under AASB 138 have been updated. The major object behind this is to bring the convergence in the accounting methods which are followed by the number of listed companies in several countries. Such convergence has been brought to establish the uniformity and comparability in the financial statements of the listed companies. For every organisation the policies relating to recognition, measurement, cost inclusion or exclusion, revaluation and disclosure of the intangible assets have been defined similar (Lin, et al. 2017)

Sometimes the rules and obligations defined under both AASB 138 and IAS 38 proves flexible in certain cases. At these certain places the use of best estimated management judgements and external evidence is asserted by these both accounting measures. For example paragraph 22 permits the management to use their best judgement to ascertain the future profitability but it can be results into flexibility in the consideration of profitability and may also reduce the uniformity of estimates. The management judgement estimates are taken by the several listed companies situated in different countries around the world which makes them differ. It raises the finger on the comparable factor of financial statement (Gunarathne, & Alahakoon, 2016).

Apart from that all the remaining rules and restrictions defined under AASB138/IAS 38 have established the comparability between financial statements whether between the domestic entities in Australia or at the international corporate platform. Also, the comparison of the company’s own performance over the past years results into more transparent and relevant judgements. 

Answer to question no- 3

Response to CEO in relation to market hypothesis set by AASB 138

The following relevant paragraph under AASB 138 depicts the initial measurement of intangible assets and the required compliances which have to be followed by Technology Enterprises Ltd while recording of the intangible assets (Venturelli, & Leopizzi, 2015)

Relevant paragraph of AASB 138Requirement set by the paragraph
  • Paragraph 71
An organisation is free to opt the value of intangible assets after the initial measurement whether by using cost model or revaluation model.
  • Paragraph 74
The cost model of measurement of intangible assets shows the recognised cost of assets after deducting the amortization expenses or impairment loss, if any. Such impairment loss can be caused if the asset had been gone through any test of impairment or there is any impairment loss (Russell, 2017).
  • Paragraph 75
In revaluation model of measuring the cost of intangible assets, the fair cost of assets shall be the after revaluation value at which the asset is available for the date. Such value shall also exclude the cost of accumulated depreciation and impairment loss. 
The model of revaluation can be opted by the organisations if they have the fair value of asset in reference to an active market. 
  • Paragraph 81
If there is no active market then the valuation can only be done through the cost model and the obligations defined under paragraph 74 shall be followed by the company (Bond, Govendir, & Wells, 2016).

  • There is active market which is defined under the AASB 138 in which availability o the homogenous items would be considered for the true and fair view of the recorded items. Nonetheless, in this both buyers and sellers would be indulged for trading on the basis often fair trade price of the intangible assets shown as per the AASB 138.
  • It is analysed that in the given case, there is no available data or market for the intangible assets sold in the market. However, there is also not found any homogenous items which are traded by the given organization in this case. It is hard to determine the price of the intangible assets sold in the market.  In this case, the intangible assets would be valued at $400,000. Nonetheless, this value would be wrongly considered as per the 75 and 81 of AASB 138.
  • The recording of the intangible assets in the books of account would be made as per the cost model given 74 (Mrša, 2018).
  • The amortisation expense is calculated as follows:

Life of asset: 10 years

Cost of asset: $70,000

Amortisation expense per year: 70,000/10

                            : $7,000

Recommendations to meet the concerns about investor interpretation

  • There must be proper disclosures on the foot of financial statements. As per the provisions set by AASB 138, a detailed computation of the cost of intangible assets must be shown. The reason must also be defined as why the cost model is only followed and why the present value is ignored (Akgün, 2016).
  • The management should also disclose the estimates used by them in ascertaining “expected future economic benefits”. It makes the investors enable to understand the profits and benefits which are economically attached to the development of asset.
  • The economic and other benefits from the performance of organisation shall also be included into the financials of company so the investors can understand the future economic and brand image additions to the organisation (Yao, Percy, & Hu, 2015).
  • It guides the stakeholders that what key details and recordings related to the intangible assets are required to recorded and accounted in the books of account of the organisation. 
  • It also assists the investors to identify the economic benefits and profits on the capital which are offered by the company to them. It also helps to analyse the return on total assets as it is based on the fair recording of the cost of intangible assets in the books of accounts.


Conclusively after the entire discussion about the recording and valuation of intangible assets as per the AASB 138 of Technology Enterprises Ltd, it can be stated that with the help of AASB 138 a company can strengthen transparency of its business assets to its stakeholders. Through this the company keeps and records the true and fair value of its all assets in the books of account. Technology Enterprises Ltd has maintained the proper accounts, recordings and other supporting details in its financial statements which would assist the stakeholders of the Technology Enterprises Ltd to easily ascertain the actual financial results of the company. In the end, it could be stated that every listed company must comply with the rules, restrictions, provisions and laws of the AASB 138 for proper, fair and true recording of intangible assets. To determine the value of intangible assets the cost model should be used by the company and a comparative analysis of the recorded assets should be held on the periodic basis.