Management Incentives To Intangible Assets -Myassignmenthelp.Com

Question: Discuss About The Management Incentives To Intangible Assets? Answer: Introducation a)Research and development expenditure are undertaken by the company to generate more revenue. They are mostly part of the technological innovations and are associated with bringing improvements in the already existing system. There is very thin line that differentiates research and development activities. Nowadays the companies mostly treat these expenditures together and are allocated under the same head of accounting. The major difference between the two is that research expenses are treated as operating costs and are not capitalised. And in case of development expenses they are capitalised and then amortized (Drucker, 2017). The main logic behind the same is that development expenses helps in bringing a new asset into existence. There is some sort of development of an identifiable asset that can be used in the future by the company. For example, designing of a new product by the company is a development cost. And the cost that the company incurs to get knowledge about the competi tor in the market is a research cost. In the given case study, we see that the company is incurring cost to bring into existence a new product i.e. a computer that will solve its many issues. It will help in summarising of the work that was previously done manually. Hence, it is a new product that the company is developing and is spending $100000 for the creation of the project. It will be treated as development cost (Demski, 2017) b)In the given case study, as mentioned in the above answer, the cost that the company will bear for the creation of the new computer, will be development cost. A new product is coming into existence; hence it cannot be treated as operating expenses. The company needs to capitalise the said cost with the total cost of the new asset. The total monies spent by the company for the new computer should be added to the total cost of the computer and then it should be amortised down the years (Smith, 2017). This is the standard procedure that the company must follow while accounting for development costs. Research costs must be treated as operating expenses and must be shown in the income statement of the company. In case of the research expenditure there is a lot of uncertainty involved in the total revenue that the company might gain from the research activities undertaken by it. In case of development expenditure the company can ascertain the revenue that the new asset being developed wi ll fetch, thus it is easier to capitalise that cost. In the same way in case of the given company, it was easier to ascertain the revenue that the new computer will fetch to the company. Thus those costs must be capitalised and added to the total cost of the asset. The same must be amortised during the useful year of the asset live. That is the major difference between research and development expenses that is born by a company and this is the manner in which it should be accounted by the accounts team (Masquefa, Gallhofer Haslam, 2017) a)The total cost of the product that Large mart will sell o the UNE will be calculated by taking into consideration the development cost that was incurred by the company for the creation of the new project. The cost of goods sold is the total costs that a company can directly attribute to the production of the specific product. In the given case we see that the development cost that the company incurred for the project was directly attributable to the cost of the software hence the same will be added to the total cost of production of the CDs. The total cost of goods sold will be the total cost of production of the CDs plus the development costs that the company incurred. In case the UNE is considering to purchase the rights of the development of the software from the company. Then in that case also the development cost will be added to the total cost of the software rights, because the company needs to capitalise the same in every which way possible. This is the method by which the company will calculate the total cost of the goods sold to the university. The university will charge no money from the students and will give them the CDs as freebies (Russell, 2017). b) There are two cases that are mentioned hereunder. The first case in which the company is selling the software in 25CDs to the UNE, and the other one in which the company is selling the right to use the software to the University. In the first case, there is a sale of service and in the second case there is sale of the use of technical knowhow by the company. The same shall be regarded as in the books of account in the same manner. The sale of CDs will be recorded as sale of services under the income statement, and the sale of rights of the software will be recorded as sale of technical know (Elnasri Fox, 2017).Both the revenues are taxable as per the specified laws under the relevant acts of taxation. The revenue recognition criteria need to be followed while recording such revenues for tangible and intangible assets. These intangible assets must be identifiable, it must be in control of the company and it must be of some economic benefit to the company. Same in the case of the g iven company Landmark, the right to use the software is an intangible asset for the company. The company will recognise the sale of the same as the sale of an intangible asset in the income statement of the company. This is the manner in which the company will recognise both the options that the university is offering the company (Castilla-Polo Gallardo-Vzquez, 2016) References: Castilla-Polo, F., Gallardo-Vzquez, D. (2016). The main topics of research on disclosures of intangible assets: a critical review. Accounting, Auditing Accountability Journal, 29(2), 323-356 Demski, J. S. (2017). Accounting and economics. The new palgrave dictionary of economics, 1-6 Drucker, P. F. (2017). The Theory of the Business (Harvard Business Review Classics). Harvard Business Press,U.S.A Elnasri, A., Fox, K. J. (2017). The contribution of research and innovation to productivity. Journal of Productivity Analysis, 47(3), 291-308 Masquefa, B., Gallhofer, S., Haslam, J. (2017). Developing appreciation of micro-organizational processes of accounting change and indicating pathways to more Enabling Accountingin a micro-organizational domain of research and development. Critical Perspectives on Accounting, 44, 59-82 Russell, M. (2017). Management incentives to recognise intangible assets.Accounting Finance, 57(S1), 211-234 Smith, M. (2017). Research methods in accounting. Sage, Fourth edition.