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Accounting for intangible assets: suggested solutions

Accounting for intangible assets: suggested solutions Current accounting practice expenses many investments in intangible assets to the income statement, confusing earnings from current revenues with investments to gain future revenues. This has led to increasing calls to book those investments to the balance sheet. Drawing on relevant research, we evaluate solutions for intangible asset accounting that contrast with balance sheet recognition, and we compare these with current practice under IFRS. Key is acknowledging that an accounting solution comes from a double-entry system, which produces both an income statement and a balance sheet, and which has features that both enable and limit the information that can be conveyed about intangible asset value. In this system, asset recognition in the balance sheet must consider the effect on measurement in the income statement, for the income statement conveys value added to investment on the balance sheet. A determining feature is uncertainty about investment outcome and how that affects the income statement, so our solutions centre on accounting under uncertainty. Two other accounting features are added: there has to be an investment expenditure for balance sheet recognition, and that expenditure must be separately identifiable from transactions. These features, rather than the tangible-intangible asset dichotomy, lead to the prescribed solutions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting and Business Research Taylor & Francis

Accounting for intangible assets: suggested solutions

Accounting for intangible assets: suggested solutions

Accounting and Business Research , Volume 52 (6): 30 – Sep 19, 2022

Abstract

Current accounting practice expenses many investments in intangible assets to the income statement, confusing earnings from current revenues with investments to gain future revenues. This has led to increasing calls to book those investments to the balance sheet. Drawing on relevant research, we evaluate solutions for intangible asset accounting that contrast with balance sheet recognition, and we compare these with current practice under IFRS. Key is acknowledging that an accounting solution comes from a double-entry system, which produces both an income statement and a balance sheet, and which has features that both enable and limit the information that can be conveyed about intangible asset value. In this system, asset recognition in the balance sheet must consider the effect on measurement in the income statement, for the income statement conveys value added to investment on the balance sheet. A determining feature is uncertainty about investment outcome and how that affects the income statement, so our solutions centre on accounting under uncertainty. Two other accounting features are added: there has to be an investment expenditure for balance sheet recognition, and that expenditure must be separately identifiable from transactions. These features, rather than the tangible-intangible asset dichotomy, lead to the prescribed solutions.

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References (87)

Publisher
Taylor & Francis
Copyright
© 2021 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
ISSN
2159-4260
eISSN
0001-4788
DOI
10.1080/00014788.2021.1938963
Publisher site
See Article on Publisher Site

Abstract

Current accounting practice expenses many investments in intangible assets to the income statement, confusing earnings from current revenues with investments to gain future revenues. This has led to increasing calls to book those investments to the balance sheet. Drawing on relevant research, we evaluate solutions for intangible asset accounting that contrast with balance sheet recognition, and we compare these with current practice under IFRS. Key is acknowledging that an accounting solution comes from a double-entry system, which produces both an income statement and a balance sheet, and which has features that both enable and limit the information that can be conveyed about intangible asset value. In this system, asset recognition in the balance sheet must consider the effect on measurement in the income statement, for the income statement conveys value added to investment on the balance sheet. A determining feature is uncertainty about investment outcome and how that affects the income statement, so our solutions centre on accounting under uncertainty. Two other accounting features are added: there has to be an investment expenditure for balance sheet recognition, and that expenditure must be separately identifiable from transactions. These features, rather than the tangible-intangible asset dichotomy, lead to the prescribed solutions.

Journal

Accounting and Business ResearchTaylor & Francis

Published: Sep 19, 2022

Keywords: IFRS; intangible assets; conceptual framework; asset accounting

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