Understanding Intangible Assets And Impairment Testing

Identification Criteria and Recognition of Intangible Assets

Question:

Describe the Treatment of Intangible Asset in the Financial Statement of JB Hifi and Aditya Birla Company?

AASB 138 applies to all intangible assets aside from:

• Intangible assets inside the extent of an alternate standard
• Money related resources, according to AASB 132
• Investigation and assessment resources, according to AASB 6
• Consumption on improvement and extraction of minerals, oil and related assets.
• Definitions incorporate dynamic business, resource, expense, reasonable quality and helpful life
• An elusive resource is an identifiable non-fiscal resource without physical substance

The identifiability criteria for an impalpable resource is fulfilled in the event that it:

Is equipped for being divided and sold, exchanged, authorized, leased or traded either independently or together with an alternate resource; or

Emerges from contractual or other legitimate rights.

Beginning distinguishment as an advantage, whether acquired or self-made, when and just when:

It is plausible that the future financial profits that are attributable to the benefit will stream to the element; and

The expense of the benefit can be measured dependably.

Introductory estimation is at expense, including any straightforwardly attributable expenses, for example,

Immediate representative advantage expenses and expert charges acquired to bring the resource for its working condition

Expenses of testing whether the benefit is working appropriately.

Immaterial resources, including in-methodology innovative work (Ipr&d), obtained in a business blend must be perceived independently from goodwill in the event that they emerge as a consequence of contractual or legitimate rights or are distinguishable from the business

Inside produced goodwill, brands, mastheads, distributed titles, client records, and things comparable in substance should not be perceived as intangible assets

Exploration costs must be expensed when acquired

Advancement expenses are perceived as a benefit just if certain criteria can be showed including:

The specialized plausibility of finishing the immaterial resource so it will be accessible for utilization or deal

Capacity to utilize or offer the immaterial resource

The accessibility of satisfactory specialized, money related and different assets to finish the improvement and utilize or offer the impalpable resource.

The expense of inside produced elusive resources perceived must exclude start-up expenses, preparing expenses, publicizing expenses, and migration costs.

In the annual report of JB Hifi intangible asset has been defined as the assets which have some value but do not have physical existence. Hence, intangible assets cannot be indentified physically unlike the tangible assets such as plant, machines etc. In the annual report of the company, notes to the financial statement have indicated that for recognizing the intangible asset, the asset must be separable or it needs to be raised from some legal rights or contracts (Brigham & Houston, 2004).

According to the annual financial report of Aditya Birla, intangible assets of the company are consisted of the goodwill and other assets. The intangible assets in Aditya Birla are tested for impairment (Marsh, 2012).

Goodwill, accumulating $2,019.0 million, has been recorded as of January 28, 2012 identified with different acquisitions. Goodwill speaks to the abundance price tag over unmistakable net resources and identifiable elusive resources procured. The Company is obliged to assess goodwill and other immaterial resources not subject to amortization for impedance in any event every year. This test is finished as of the start of the final quarter every financial year or when circumstances demonstrate the convey estimation of the goodwill or other elusive resources may be debilitated. Goodwill has been relegated to reporting units with the end goal of impedance testing. The Company has four business fragments, the United States, Australia, Canada and Europe, which likewise characterize our reporting units based upon the comparative monetary attributes of operations inside each one section, including the way of items, item dispersion and the kind of client and separate administration inside those locales. The Company gauges reasonable quality focused around the marked down money streams of each one reporting unit. The Company utilizes a two-stage methodology to gauge goodwill hindrance. On the off chance that the reasonable estimation of the reporting unit is higher than its convey esteem, then goodwill is not impeded. In the event that the convey estimation of the reporting unit is higher than the reasonable quality, then the second test of goodwill impedance is required. The second test looks at the suggested reasonable estimation of the reporting unit’s goodwill with its convey sum. On the off chance that the convey measure of the reporting unit’s goodwill surpasses the inferred reasonable quality, then a debilitation misfortune is perceived in the measure of the abundance. On the off chance that the convey estimation of an individual inconclusive existed elusive resource surpasses its reasonable worth, such individual uncertain existed impalpable resource is composed around the measure of the abundance. The Company finished its yearly hindrance test of goodwill as of the first day of the final quarter of financial 2009, monetary 2010 and financial 2011 and presumed that none of its goodwill was hindered. For the monetary 2011 weakness test, for each of the reporting units, the figured reasonable quality surpassed the convey esteem by more than ten percent. For financial 2011, there was a $3.3 million goodwill.

Impairment Testing Process

Trademarks/ Brands – 10 years

Specialized Software – 3 years

Goodwill – Not being amortized.

The convey measures of advantages are audited at each one Balance Sheet date if there is any evidence of disability focused around inward/outside components. A benefit is dealt with as impeded when the convey expense of the benefits surpasses its recoverable worth. An impedance misfortune if any, is charged to Profit and Loss Account in the year in which a benefit is distinguished as hindered. Inversion of disability misfortunes perceived in earlier years is recorded when there is an evidence that the debilitation misfortunes perceived for the benefits no more exist or have diminished.

Particulars	2014	2013	2012	2011
Gross Margin %	80.2	73.3	70.4	80.2
Operating Income INR Mil	17,142	14,779	18,580	11,949
Operating Margin %	6.6	5.8	8.6	6.6
Net Income INR Mil	11,429	10,589	10,102	9,080
Earnings Per Share INR	91.12	91.5	78.36	75.74
Dividends INR	6.5	6	5.5	5
Payout Ratio %	7.1	6.6	7	6.6
Shares Mil	125	116	114	109
Book Value Per Share INR	919.63	858.83	688.42	610.63
Operating Cash Flow INR Mil	476	-9,741	2,761	40,652
Cap Spending INR Mil	-44,275	-16,609	-16,701	-28,815
Free Cash Flow INR Mil	-43,799	-26,350	-13,941	11,837
Free Cash Flow Per Share INR	-349.22	-227.7	-122.72	109.06
Working Capital INR Mil	30,657	17,747	14,077	28,106
Tax Rate %	31.06	22.4	17.62	16.78
Net Margin %	4.41	4.15	4.12	4.53
Asset Turnover (Average)	0.43	0.5	0.51	0.5
Return on Assets %	1.9	2.07	2.1	2.28
Financial Leverage (Average)	5.27	5.53	5.78	5.72
Return on Equity %	10.25	11.68	12.07	13.08
Return on Invested Capital %	4.19	4.69	7.76	5.61
Interest Coverage			2.47
Current Ratio	1.21	1.11	1.12	1.68
Quick Ratio	0.8	0.95	0.12	1.33
Financial Leverage	5.27	5.53	5.78	5.72
Debt/Equity	0.81	0.86	0.68	1.34

Particulars	2014	2013	2012	2011
Revenue AUD Mil	3,484	3,308	3,128	2,959
Gross Margin %	21.2	21.1	20.7	21.8
Operating Income AUD Mil	191	178	161	162
Operating Margin %	5.5	5.4	5.2	5.5
Net Income AUD Mil	128	116	105	110
Earnings Per Share AUD	1.27	1.17	1.06	1.01
Dividends AUD	0.77	0.66	0.78	0.81
Payout Ratio %	60.7	56.4	73.7	80.1
Shares Mil	101	99	99	109
Book Value Per Share AUD	2.98	2.44	1.87	1.55
Operating Cash Flow AUD Mil	41	156	215	110
Cap Spending AUD Mil	-36	-35	-46	-45
Free Cash Flow AUD Mil	5	121	169	65
Free Cash Flow Per Share AUD	0.05	1.22	1.71	0.6
Working Capital AUD Mil	226	121	95	155
Tax Rate %	29.69	30.6	29.47	30.83
Net Margin %	3.68	3.52	3.35	3.71
Asset Turnover (Average)	4.09	4	3.96	4
Return on Assets %	15.07	14.07	13.26	14.81
Financial Leverage (Average)	2.92	3.47	4.4	5.04
Return on Equity %	47.72	54.4	62.14	49.23
Return on Invested Capital %	31.97	35.17	31.78	31.99
Interest Coverage	21.65	17.55	11.87	26.3
Current Ratio	1.64	1.27	1.22	1.45
Quick Ratio	0.32	0.3	0.22	0.25
Financial Leverage	2.92	3.47	4.4	5.04
Debt/Equity	0.61	0.51	0.81	1.53

Impalpable resources are characterized as identifiable non-fiscal resources that can’t be seen, touched or physically measured. JB Hi Fi Ltd’s impalpable resources for the quarter that finished in Jun. 2014 was €59 Mil.

On the off chance that an (organization A) got a patent through their own work, however it has esteem, it doesn’t appear on its monetary record as an elusive resource. Nonetheless, if organization An offers this patent to organization B, it will appear on organization BÂ’s asset report as an elusive resource.

The same applies to brand names, competitive innovations and so on. Case in point, Coca-ColaÂ’s brand is greatly important, however the brand does not show up on its asset report, on the grounds that the brand was never obtained. A few intangibles are amortized. Amortization is the deterioration of impalpable resources. Numerous intangibles are not amortized. They may at present be composed down when the organization chooses the advantage is disabled.

At whatever point you see an increment in goodwill over various years, you can accept itÂ’s on the grounds that the organization is out purchasing different organizations above book esteem. Great if purchasing organizations with strong game changer. In the event that goodwill keeps with it, the organization when gaining different organizations is either paying short of what book esteem or not obtaining. Organizations with channels never offer for short of what book esteem. Intangibles gained are on accounting report at reasonable worth. Inside created brand names (Coke, Wrigleys, Band-Aid) however are not thought about the accounting report.

An element might group a non-current resource, or transfer bunch, as held available to be purchased on the off chance that its helping sum will be recouped primarily through a business exchange as opposed to through proceeding with utilization.

The advantage must be accessible for prompt deal in its current condition subject to any terms that are regular and standard for offers of such resources and its deal must be profoundly plausible.

Very likely is showed by administration being focused on a plan to offer the benefit and a dynamic system to finish the arrangement and discover a purchaser. Value must be sensible in connection to its present reasonable quality. The deal ought to be required to be finished inside one year.

Occasions or circumstances may augment the period to finish the deal past one year, by and large occasions and circumstances past the element’s control, and administration must at present be focused on the transfer plan.

At the point when the deal is relied upon to happen past one year the element might quantify expenses to offer at their present worth. Promptly before the introductory arrangement of the benefit as held available to be purchased the convey measure of the advantage might be measured as per material Australian Accounting Standards (eg for property, plant and gear and intangibles 116,136 and 138 would apply).

References

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