22 Amortisation of Identifiable Intangible Assets Tutticci et al 1994 indicate

22 amortisation of identifiable intangible assets

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2.2 Amortisation of Identifiable Intangible Assets Tutticci et al. (1994) indicate that the requirement for identifiable intangible assets to be amortised was an issue which received significant attention on the release of ED 49. Coombes, Otto and Stokes (1996) also suggest that amortisation of identifiable intangible assets has for sometime been a contentious issue in Australia (see also English, 1990; and Reilly, 1989). Two major issues arise in relation to amortisation of identifiable intangible assets. First, the broad question of whether or not identifiable intangible assets which have been capitalised should be written off over time, that is amortised, as opposed to carrying them in the balance sheet unamortised indefinitely. It is sometimes argued that intangibles such as brands and trademarks, which are receiving continued support from a company, have an unlimited life and should therefore not be subject to any requirement to amortise the asset (Ferris & Hall, 1989). While identifiable intangible assets are required to be amortised under AAS 4/AASB 1021, Depreciation , 4 it appears that many companies do not comply with these requirements (AAG 5, 1985; Carnegie & Kallio, 1988; Kirkness, 1987; Wines & Ferguson, 1993; Heazlewood & Ryan, 1999) 5 . Therefore many identifiable intangible assets are included in the balance sheet indefinitely. By not complying, companies are able to avoid 4 Accounting Guidance Release AAG 5, Accounting for Intangible Assets (Recognised in Accordance with Statement of Accounting Standards AAS 18 “Accounting for Goodwill”) , (issued in 1985 and withdrawn in 1997), and now Accounting Interpretation AI 1, Amortisation of Identifiable Intangible Assets (1999), both clarify this point. 5 The reason often given for not amortising identifiable intangibles is that they have an indefinite or indeterminate life. 4
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the impact of amortisation on the profit and loss statement. ED 49 proposed to remove any discretion in relation to amortisation of identifiable intangibles that have been recognised in the accounts. Paragraph .40 explicitly required them, whether purchased or internally developed, to be systematically amortised. The second major issue that arises in relation to amortisation of identifiable intangible assets is whether a maximum period of amortisation should be set. Reilly (1989) suggests that not setting a maximum amortisation period for identifiable intangible assets allows directors to argue for longer amortisation periods, and therefore to reduce the year to year impact of amortisation. This may also provide an incentive for companies to recognise identifiable intangible assets rather than goodwill, which must be amortised over a maximum period of 20 years. 6 ED 49 (para. .40) proposed that identifiable intangible assets be amortised over the period the benefits from the asset were expected to arise. It required that this period be finite. Paragraph (xi) suggests that few assets could be expected to provide benefits in excess of a 20 year period. Detailed disclosures were required if this 20 year period was to be exceeded (para. .70(g)).
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