Reference no: EM132752957

Question: Read the following extract from a working paper and as a group write one paragraph (no more than ) that answers the following:

1. What are the two conditions of the definition of an asset?

2. How many types of intangible assets did the author mention and what is the problem with the way these assets have been treated under existing accounting standards?

3. Do you think that standard setters should change the rules as the author recommended?

4. Do you agree with the author that accounting is unfair? If so what other examples can you think of?

Introduction: Accounting is Unfair As freshmen, we were taught never ever to recognize internally generated goodwill for the simple reason that it does not meet the 'measured reliably' condition of the definition of an asset. As sophomores, when we were brave enough to ask about the source of the shiny intangible asset on the balance sheets of rich multinational companies, that is also called goodwill, we were answered by 'goodwill from consolidation is the only goodwill you will see'. As seniors, when we looked closely at purchased goodwill, and pointed out that, while it can be measured reliably, it does not necessary meet the 'future economic benefits' condition of an asset, we were answered by 'purchased goodwill is recognized because the standard setters decided so'. As scholars, when we gave up hope on goodwill altogether, we realized that, most internally generated intangibles do not make it to the balance sheet simply because accounting is unfair. While this unfairness is unlikely to be completely fixed, this paper attempts to put one thing right by singling out trademarked brands as one category of internally generated intangibles that should be recognized on the balance sheet. Through financial statement analysis, this paper demonstrates that trademarked brands clearly fit with the criteria of an asset.