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ACC30008 Accounting Theory

Published : 03-Sep,2021  |  Views : 10


Write a report to provide explanation of at least four quality*, scholarly journal articles that present evidence on this issue in the context of any country.These articles must be drawn from journal titles listed on the Australian Business Deans Council (ABDC) list, which represents a measure of quality.
Describe the r accounting theory knowledge, the assignment provides you with the opportunity to develop your understanding and ability to apply several topics included in the Unit with respect to generic skills, the assignment provides you with the opportunity to develop your ability to research and analyse complex issues, to formulate well-reasoned and coherent arguments, to reach well considered conclusions, and to develop your written communication skills, including the conventions of referencing at university. 


International accounting standard 38 has been developed with the motive to prescribe the accounting treatment for the intangible assets. Further, in accordance with the standard, it is necessary for the enterprise to recognize intangible asset (Christensen et al. 2015). The range of standards present also allows in specifying how to measure the carrying amount of intangible assets and requires specified disclosure linked with intangible assets. It is mandatory to apply this standard to intangible assets only. The main purpose behind carrying out the present report carried is to analyze the impact of adoption of IAS 38 around the world. Further, the key principles associated with IAS 38 have been highlighted in the study along with the areas that are affected due to this concept.

Concept of IAS 38

IAS 38 has been introduced with the motive to measure and recognize intangible assets, and it needs disclosure about them. Further, any type of intangible asset is considered as the non monetary asset without any physical substance. It is possible to sale, transfer and license of the separable assets. The main examples of intangible assets are the trademark, patent, license, computer software, etc. The goodwill that has been developed within the business internally is considered within the scope of IAS 38, but it is not considered as the asset as it is not the identifiable resource (Crawford et al. 2014). Any type of expenditure that is associated with the intangible item is undertaken as an expense unless the item lies under the criteria of an intangible asset. For treating any type of intangible assets, its overall cost is undertaken. After recognition, any type of organization measures intangible asset at cost less accumulated amortization. In case of research expenditure it is undertaken as an expense and on the other hand development expense that meets any specific criteria is considered as the cost of the intangible asset.

In case if any organization adopt the practice of IAS 38 then in such case treatment of intangible asset will be influenced through this. Further, considering the measurement of an intangible asset, it totally relies upon whether it has been acquired separately or not as other situations is present where the asset can be acquired as an integral part of the business combination or was generated internally (Bamber & McMeeking 2016). Considering the overall practice of IAS 38, it is not possible for the companies to revaluate intangible assets unless the active market is present in which transactions associates with asset and liability can take place frequently and in proper volume so as to deliver effective pricing information on the continuous basis. Apart from this, the overall value of business goodwill is measured as a residual on the actual data when it has been acquired.


Considering the applicability part, IAS 38 applies to all the intangible assets that organizations hold around the globe. The rule of IAS 38 states that all the intangible assets generated internally are a part of expense when they are incurred. Further, as per the IAS 38 rule goodwill is not at all considered as an asset as it is not at all identifiable resource. Generally, goodwill is not included in the list of an intangible asset (Daske et al. 2013). Apart from this, customer list, publishing title, generated brands, etc. are not considered as the intangible asset. In case if any type of intangible asset is acquired in business combination than its fair value at acquisition date is considered to be overall cost of intangible asset.

IAS 38 requires different type of organizations to deliver series of disclosures (Crawford et al. 2014). Any specific organization is required to disclose various elements for every class of intangible asset (a) whether  the useful lives are finite or indefinite (b) different techniques of amortization employed for intangible assets with finite useful live (c) the value of accumulated amortization and gross carrying amount at beginning and end of every period (d) considering the different items of the income statement in which amortization of intangible asset is undertaken (e) reconciliation of the amount that is carried at the beginning and end of the month. Many time it is possible that organizations are not able to identify real cost of their assets and through applicability of IAS 38 it is possible to measure cost of asset reliably.

Exchange of asset 

It is possible for the entities to acquire an intangible asset in exchange for nonmonetary one. For determining the fair cost value of the asset is undertaken and in case if fair value is not considered then cost is determined at the carrying amount (DeFond et al. 2014).

Measurement after the recognition

Considering the overall practice of IAS 38 organization must select either cost model or the revaluation model as its accounting policy. Considering the cost model which is based on the belief that intangible asset must be conducted at cost less accumulated amortization and any other sort of impairment losses.

Apart from this, the revaluation model states that intangible asset must be carried out at the revalued amount at the date of revaluation where accumulated amortization is deducted. It is required to measure fair value on the basis of the active market (Gordon et al. 2017). When any type of intangible asset is revalued then in such case carrying the amount of that particular asset is adjusted to the revalued amount. On the day when the asset is revalued, then it is treated in several ways that involve adjustment of gross carrying amount in such a way that is consistent with the revaluation of the carrying amount, elimination of accumulated amortization against the gross carrying amount of the asset.

Difference in between IAS and Italian law

There is a wide difference in between IAS 38 and the Italian law. The first basic difference is that IAS 38 deals with the intangible assets and in case of Italian law long term costs are considered on the basis of different conditions. Applicability of two types of model is possible in IAS 38 that involves cost and revaluation. But on the other hand in case of Italian law cost model is only undertaken (Sinclair & Keller 2017). Further, in case of IAS 38 basic differences are present in case of assets with finite life which is subject to amortization and assets that have the infinite life with the subject to the impairment test. In case if Italian law only assets with finite life with subject to amortization is undertaken. So, this directly reflects the basic difference in between IAS 38 and Italian law which companies have to undertake (Oulasvirta 2014). Companies operating in the market have to alter their overall practices due to IAS 38 where they have to treat intangible assets in a different manner. Under IAS 38, the overall accounting requirements in case of tangibles that are acquired externally are more liberal.

Useful life and the process of amortization

            According to the IAS 38 standards, assets are classified into two different categorize which are assets with finite useful life and assets with indefinite useful life (Yudi et al. 2016). Furthermore, an amortizable value can be taken into consideration to calculate the useful life of a particular asset. The difference between entry value and residual value is used for the purpose of calculating the amortizable value of an asset. The IAS 38 also highlights the fact that straight line method is the common method which is used to calculate the amortizable value of an asset.

            On the contrary of this, the latest up gradation in IAS 38 standards has resulted in raising issues and concerns linked with intangible assets with the indefinite life (Horton, Serafeim & Serafeim 2013). For example, in some assets the time limit for providing economic benefit is not fixed or foreseeable. Thus, it is more suitable to carry out impairment test of intangible assets once in a year rather than carrying out amortization of these assets.  

Impairment of losses

            The problems or issues linked with impairment losses of intangible assets are taken care by Italian Law and International Accounting Standards (Kothari, Ramanna & Skinner 2015). On the contrary, it can be critically argued that there are two major differences between Italian Law and International Accounting Standards and these differences needs to be taken into consideration. The first and key difference is linked with the duration of the impairment test, and the International Accounting Standards highlights that the test should be carried out at-least for one time every year (Ahmed, Neel & Wang 2013). The second difference between Italian Law and International Accounting Standards is associated with the method adopted to carry out the test. However, it is not mandatory to carry out the impairment test in Italy, and the main emphasis is laid on ensuring the fact that each value is entered correctly in the financial statements.


The entire study carried out has supported in knowing about IAS 38. Further, it has directly changed the accounting treatment of intangible assets which every company operating in the market has to undertake. It is necessary to recognize the range of intangible assets at cost at which it has been acquired. The key attributes of an intangible asset that have been identified involve identifiability, physical substance, and nonmonetary nature. In case if all these conditions are not at all satisfied then in such case cost associated with the intangible resource must be shown in the income statement and in case if conditions are satisfied then it can be treated as the asset and can be shown on the balance sheet.

There are some recommendations to companies so that they can adopt practice of IAS38 in proper manner. Further, it is required to provide proper training to the finance department so that they can understand the concept of IAS38 in proper manner as many times it is misunderstood such as category of intangible asset etc.  Apart from this internal audit must be carried out on continuous basis so as to know that company complies with the principles of IAS38 in proper manner.


Ahmed, AS, Neel, M & Wang, D 2013, 'Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence.', Contemporary Accounting Research , vol 30, no. 4, pp. 1344-1372.

Bamber, M & McMeeking, K 2016, 'An examination of international accounting standard-setting due process and the implications for legitimacy', The British Accounting Review, vol 1, no. 59-73, p. 48.

Christensen, HB, Lee, E, Walker, M & Zeng, C 2015, 'Incentives or standards: What determines accounting quality changes around IFRS adoption? ', European Accounting Review, vol 24, no. 1, pp. 31-61.

Crawford, L, Ferguson, J, Helliar, CV & Power, DM 2014, 'Control over accounting standards within the European Union: the political controversy surrounding the adoption of IFRS 8. ', Critical Perspectives on Accounting, vol 25, no. 4-5, pp. 304-318.

Daske, H, Hail, L, Leuz, C & Verdi, R 2013, ' Adopting a label: Heterogeneity in the economic consequences around IAS/IFRS adoptions. ', Journal of Accounting Research, vol 51, no. 3, pp. 495-547.

DeFond, ML, Hung, M, Li, S & Li, Y 2014, ' Does mandatory IFRS adoption affect crash risk? ', The Accounting Review , vol 90, no. 1, pp. 265-299.

Gordon, EA, Henry, E, Jorgensen, BN & Linthicum, CL 2017, 'Flexibility in cash-flow classification under IFRS: determinants and consequences', Review of Accounting Studies, vol 22, no. 2, pp. 839-872.

Horton, J, Serafeim, G & Serafeim, I 2013, 'Does mandatory IFRS adoption improve the information environment? ', Contemporary Accounting Research, vol 30, no. 1, pp. 388-423.

Kothari, SP, Ramanna, K & Skinner, DJ 2015, 'Political Standards: Corporate Interest, Ideology, and Leadership in the Shaping of Accounting Rules for the Market Economy. ', Journal of Accounting & Economics, vol 45, no. 20, pp. 2-3.

Oulasvirta, L 2014, 'The reluctance of a developed country to choose International Public Sector Accounting Standards of the IFAC. A critical case study.', Critical Perspectives on Accounting, vol 25, no. 3, pp. 272-285.

Sinclair, R & Keller, KL 2017, 'Brand value, accounting standards, and mergers and acquisitions:“The Moribund Effect”', Journal of Brand Management, vol 24, no. 2, pp. 178-192.

Yudi, Y, Sudarma, M, Djamhuri, A & Baridwan, Z 2016, 'The meaning behind accrual accounting at a local government in Indonesia', Russian Journal of Agricultural and Socio-Economic Sciences, vol 58, no. 10, pp. 33-38.

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