What improvements could possible made in order to settle down the issues below. 1.1 Research and development expenditures. (a) Determination of research and development phases- identifying and differentiating between the research and development phases is not an easy task. Often, there is a vague line between these two phases as there will be multiple processes occurring at different phases and stages throughout the research and development activities. (b) High cost during the research phase that cannot be capitalized- the success of research and developmentactivities is often uncertain and the success rate is typically low. From many R&D projects, only a few will result in products that can be commercialized and for which the costs can be capitalized. The unsuccessful projects, in which huge costs could have been incurred, are typically accounted for as expenses. (c) Multiple projects- accounting for R&D is often made complicated when there are multiple projects occurring at different phases in the same period. One example of the issues is the sharing of assets for multiple projects. Often, R&D activities took place in similar laboratory and sharing of facilities is a common practice. In this context, the apportionment of the cost of the assets, such as depreciation, to the relevant projects is not easily done in practice. (d) Disclosure of R&D- while the disclosure of R&D is required to provide users with overall understanding of corporate investments in R&D, there are arguments that the disclosure would reveal the competitive advantages of the company. Too much disclosure gives away information to competitors and could result in losing competitive advantage as the potential product is replicated before it can be patented. 1.2 Non- recognition of other internally generated intangibles. a) Non-recognition leads to differences between book value and true economic value of firms-Many companies, such as those in the services and hospitality industry, rely a lot on their customer service and marketing capabilities. These capabilities are often internally developed based on the company's experience and knowledge of serving the industry for a number of years. By not being able to capitalize these intangibles, the costs incurred are kept expenses and hence, it is argued as the reason for the differences between book value and true economic value of within firms. (b) Differences in the treatment between acquired and internally generated intangibles although they are the same assets- the differences in the treatment of similar assets is another factor that calls for debate concerning accounting for intangibles. Internally developed customer lists, often a valuable resource for telecommunication companies, are left out from capitalization of assets. Yet, they are accounted as assets if they were acquired. (c) Issues of control- issues of control involving internally generated intangibles are often associated with the fact that the internally developed practices, systems or processes, although they bring benefits to the company, are confounded by the inability of the company to control the benefit from being used or replicated by other companies. For example, in terms of marketing capabilities, competitors can easily replicate them. (d) Valuation issues–the main issue with non-recognition of internally generated intangibles is the problems involving their valuation.
MFRS 138- intangible assets
What improvements could possible made in order to settle down the issues below.
1.1 Research and development expenditures.
(a) Determination of research and development phases- identifying and differentiating between the research and development phases is not an easy task. Often, there is a vague line between these two phases as there will be multiple processes occurring at different phases and stages throughout the research and development activities.
(b) High cost during the research phase that cannot be capitalized- the success of research and developmentactivities is often uncertain and the success rate is typically low. From many R&D projects, only a few will result in products that can be commercialized and for which the costs can be capitalized. The unsuccessful projects, in which huge costs could have been incurred, are typically accounted for as expenses.
(c) Multiple projects- accounting for R&D is often made complicated when there are multiple projects occurring at different phases in the same period. One example of the issues is the sharing of assets for multiple projects. Often, R&D activities took place in similar laboratory and sharing of facilities is a common practice. In this context, the apportionment of the cost of the assets, such as
(d) Disclosure of R&D- while the disclosure of R&D is required to provide users with overall understanding of corporate investments in R&D, there are arguments that the disclosure would reveal the competitive advantages of the company. Too much disclosure gives away information to competitors and could result in losing competitive advantage as the potential product is replicated before it can be patented.
1.2 Non- recognition of other internally generated intangibles.
a) Non-recognition leads to differences between book value and true economic value of firms-Many companies, such as those in the services and hospitality industry, rely a lot on their customer
(b) Differences in the treatment between acquired and internally generated intangibles although they are the same assets- the differences in the treatment of similar assets is another factor that calls for debate concerning accounting for intangibles. Internally developed customer lists, often a valuable resource for telecommunication companies, are left out from capitalization of assets. Yet, they are accounted as assets if they were acquired.
(c) Issues of control- issues of control involving internally generated intangibles are often associated with the fact that the internally developed practices, systems or processes, although they bring benefits to the company, are confounded by the inability of the company to control the benefit from being used or replicated by other companies. For example, in terms of marketing capabilities, competitors can easily replicate them.
(d) Valuation issues–the main issue with non-recognition of internally generated intangibles is the problems involving their valuation.
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