1. A customer filed a lawsuit against Delta Ltd in December 2018. The lawsuit was for costs and damages allegedly incurred as a result of the failure of one of Delta Lid's electrical products. The amount claimed was $3 million. Delta Lid's lawyers have advised that the amount claimed by the customer is extortionate and that Delta has a good chance of winning the case. However, the lawyers have also advised that Delta Lid loses the case it is expected that costs and damages awarded would be $500,000
Required:
A) Explain the accounting for contingent liabilities with reference to AASB 137.
B) Under AASB 137, how should Delta Ltd disclose accounting implications of this lawsuit in its financial statements as at 31 December 2018?
2. In the article entitled 'U.S. firms challenged to get intangibles" on the books', Byrnes and Aubin (2011) noted that some companies in the United States were accounting for intangibles such as brands, patents, and information technology differently depending on whether they were developed internally or acquired. Different accounting treatments can have a large impact on accounting numbers where internally generated intangibles developed at low cost by one company are sold at significant mark ups to another company.
Required:
A) Explain the accounting for internally generated intangible assets and impairment of intangible assets with reference to AASB138/IAS 38 and AASB 136/IAS 36 respectively
B) Discuss any differences between accounting for intemally generated intangible assets and acquired intangible assets in AASB 138/1AS 38. c) Discuss why companies may be reluctant to press for changes in AASB 138/ IAS 38 to require more recognition of internally generated intangible assets.
Hint
Accounts & Finance "B) Intangible Assets, in IAS 38 outlines the accounting requirements for intangible assets, i.e. they are non-monetary assets that are without physical substance and identifiable i.e. either being separable or arising from contractual or other legal rights. These assets are an identifiable non-monetary asset without physical substance and such assets are identifiable w...
"B) Intangible Assets, in IAS 38 outlines the accounting requirements for intangible assets, i.e. they are non-monetary assets that are without physical substance and identifiable i.e. either being separable or arising from contractual or other legal rights. These assets are an identifiable non-monetary asset without physical substance and such assets are identifiable when they are separable i.e. can be sold, transferred, licensed, etc., or when arises from contractual or other legal rights.
Also, when an intangible asset is acquired as part of some sort of business combination, it is necessary the acquirer separate the asset from goodwill if:
1. it arises from a legal or contractual right,
2. it is actually separable
Here, separable means that the acquirer is able to parse or divide the asset outside of the target business and potentially sell, license or exchange, rent to another company or entity. And, separable assets are always defined in this case as intangible even if the acquirer don't intend to subsequently or separately divest of the asset after the overall transaction is completed."
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