Introduction
Intangible assets are recognized as a particular class of assets by the International Accounting Standard Board. IASB defines assets as “a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity” (Kocak 2008, p. 1). To extend this definition, IAS (International Accounting Standards) 38 defines intangible assets as assets that do not exist in physical substance and are non-monetary but identifiable within the business. An item to be recognized as an intangible asset, it must be capable of being recognized and described by the definition of intangible assets.
According to Bhattacharyya (2007), “an intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production, or supply of goods or services or for rental to others or administrative purposes” (263). The objective of this paper is to examine the treatment of intangible assets of all types of Crown Melbourne. Consideration is made if the treatment conforms to the relevant accounting standards. The accounting standards used in this case is the Australian Accounting Standards. The reference point will be AASB 138 which deals with intangible assets. The provisions made in these standards are in keeping with those maintained in IAS 38 on intangible assets.
Understanding AASB 138 on intangible assets
According to Australian Accounting Standards (2007), for an asset to be treated as an intangible asset, it must have the following elements: “Identifiability (i.e. separable from the entity, or arises from contractual or legal rights), control over a resource by the entity, and the existence of future economic benefits” (p. 1). They are recognized if they are likely to bring future economic benefits and that their cost can be ascertained reliably (Anson, 2007). They should initially be measured at cost according to the standard.
If intangible assets are separately acquired, the cost of acquisition, and any other cost incurred in making the asset useful is taken into consideration. If it is acquired in a business combination, the standard required that a fair value at the time of acquisition be used in the measurement. If the asset is acquired free of charge, the fair value also applied in the measurement. Other intangible assets are internally generated in the company. In this case, they are measured at cost computed as the sum of expenditures at the time of measurement and with no regard to past expenses. If the acquisition of assets involves exchange for non-monetary assets, they are measured at fair value.
Types of intangible assets for The Crown Melbourne
The Crown Melbourne has some intangible assets that are recognized in the books of account. For instance, there are licenses, Goodwill, and other intangible assets that include those acquired separately and from business combinations. For the Crown Limited 2012 annual reports, these intangible assets were recognized and reported to the shareholders and other users of accounting information.
Compliance of Crown Limited with AASB 138 in accounting for intangible assets
Licenses
Just as AASB 138 states, licenses (an intangible asset) are carried at cost in the books of account of Crown Limited. According to Crown Limited (2012), “Licenses are carried at cost less any accumulated amortization and any accumulated impairment losses.”(p. 88). It is the responsibility of the directors to ensure that the licenses for the casinos are not taken at a higher value than the recoverable value. The premiums of the casinos are carried at the cost value.
The AASB is also not silent concerning the amortization of the intangible assets. It states that if the assets have a finite life, they should be amortized over that period. For Crown Limited, there is a License (The Crown Melbourne License) that has a definite life stated as 34 years as of the year 2012. Amortization of this license is done over the remaining life using the straight-line method. The company also has another license (The crow Perth License) that has an indefinite life. According to AASB 138, the intangible asset is not amortized if it has an indefinite life. For Crown Limited, “The Crown Perth license is assessed as perpetual and, as such, no amortization is charged and is subject to an annual impairment assessment” (Crown Limited, 2012, p. 88). This shows that compliance with the AASB is upheld by Crown Limited in the treatment of licenses which are part of its intangible assets.
Goodwill
Goodwill at Crown Limited is measured at cost when initially measured. This cost is determined as the difference between the cost of the business combination and the interest that the acquirer has on the items included. The cost taken for measurement at recognition is fewer losses suffered on impairment. The Crown Limited does not amortize goodwill. This treatment of goodwill complies with the AASB 138 which states that the assets should be measured at cost initially. It also states that goodwill should not be amortized by the company (Ramachandran, 2007). Since goodwill does not have a definite life, it is not amortized. The standard states that intangible assets should not be amortized but should be impaired annually or regularly. Goodwill for Crown Limited is frequently impaired. According to Crown Limited “Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired” (2012, p. 88). The amount of impairment is obtained by comparing the cash-generating unit value of the goodwill and the carrying amount. A loss is recognized where the carrying amount is greater than this value.
Other intangible units
These are those acquired via business combination or separately. Those acquired separately are measured at cost. Those from business combinations use fair value to measure. The amortization for these assets is done when their life is finite. The impairment, expense, is taken to the income statement and charged against the profit. According to Crown Limited, “Intangible assets are tested for impairment where an indicator of impairment exists, and annually in the case of intangible assets with indefinite lives, either individually or at the cash-generating unit level“(2012, p. 88). The working lives of the assets are assessed every year and changed applied where appropriate. This is in keeping with AASB provision that there should be an annual test of impairment for intangible assets to ensure that the right figure is reported in the books. When the intangible assets can no longer guarantee future economic benefits, they derecognized from the books of account.
Conclusion
The main intangible assets for Crown Limited are the Goodwill, licenses, and others. The treatment of these items in the books of account was found to be compliant with the Australian Accounting Standards that are stipulated in AASB 138. The recognition and measurement of intangible assets for Crown Limited is done strictly concerning IAS 38 or AASB 138 which gives guidelines on how they should be accounted for (Cohen 2011).
Reference List
Anson, W 2007, The Intangible Assets Handbook: Maximizing Value from Intangible Assets, American Bar Association, USA.
Australian Accounting Standards, 2007, AASB 138 Intangible assets, Web.
Bhattacharyya, K 2007, Essentials of Financial Accounting, PHI Learning Pvt. Ltd, London.
Cohen, J 2011, Intangible Assets: Valuation and Economic Benefit, John Wiley & Sons, London.
Crown Limited, 2012, Australia’s Leading Integrated Resort Company: Annual reports 2012, Web.
Kocak, S 2008, Intangible Assets in Business Valuation, with Emphasis on Real Options Approach, GRIN Verlag, Santa.
Ramachandran, K 2007, Financial Accounting for Management, Tata McGraw-Hill Education, New York.