Concept of Asset
The existing report would be based on the discussion of Codan Ltd. Codan Ltd is regarded as the manufacturer and suppliers of the communications, mining technology and metal detections in South Australia. Codan Ltd is the leading provider of communication business unit and indulged in business through the operating segments of radio communications. The report is based on assessing the decisions undertaken by the Codan Ltd in continuous significant investment in the development of new product.
The report would focus on Codan Ltd future by creating a pipeline for future opportunities. The report would be aimed at understanding the Codan Ltd development of new cascade LMR product platform forming as the key driver of the company’s future growth. As the company has not undertaken any physical investment it is assumed that the company can be categorized as the Intangible asset. The concept of intangible asset is governed under AASB 138 and the concept can be obtained through the conceptual framework under paragraph 4.13 and 4.14.
The first priority of Codan Ltd is to widen its addressable markets. The company has made a better progress throughout the year on numerous aspects however, it could be fairly stated that it is constantly seeking to push the technical boundaries and offer more innovating solutions to the problems of customers.
For Codan Ltd solving customer’s issues at times takes longer times than the company has initially planned (Long, 2018). This is particularly in the case of its new Land Mobile Radio network solution. The company faced difficulty in recruiting the correct engineering sources which meant that it ended far behind where it anticipated. Codan Ltd has speeded the development of new Cascade Land Mobile Radio product platform which can lead to growth in their business.
Codan Ltd has accelerated its investment in the new ideas which represents the potential of challenging the traditional way of offering communication service to customers by enabling the customer explore the features of land mobile radio (Long, 2018). Codan Ltd has bolstered its sales force in order to ensure that it increases the maximum international distribution.
As understood from the above stated image a balance sheet extract for Codan Ltd is provided for the accounting year ended 2017. The purpose of the report is to address the intangible assets. As it is evident from the balance sheet extract the there is a fall in the intangible assets for 2017 in comparison to the figures posted in 2016. The primary reason for the fall in the intangible assets is the impairment of goodwill in to the cash generating unit through the financial year (Khan, 2015). Volatile commodity prices and trimming down of miners capital aligns with the challenge of moving in the direction of mechanisation.
Codan Ltd: A Case Study
The above stated figure provides the extract of the Income Statement for the financial year ended 2017. The primary purpose of this report is to provide discussion on the interest income. The interest income derived from the investment income are recorded in the income statement based on the accrual basis by using the effective interest method (Russell, 2017). As it is observed from the income statement the net finance costs has declined in 2017. The increase in interest income in 2016 is primarily because of improved income obtained through numerous source of investment done by the Codan Ltd among with the income derived from reinvestment has made significant contribution as well.
As understood from the above stated image the CEO extract for Codan Ltd provides that the company has invested greatly in the development of new product. The investment is set to accelerate more in 2018 as it continues to make investment towards new innovation for attaining diversification and growth in its sustainable revenue base (Long, 2018). The business has remained focussed in creating a leading edge solutions which would help in solving its customer’s safety, product problems and safety. The CEO continues to explain that the company has remained focused on the strategy of widening its revenue base by transforming and expanding its technology into highly attractive and adjacent markets.
The objective of the AASB 138 is to describe the accounting treatment for the intangible assets. The standard mandates the companies to record the intangible assets only when certain specified criteria are met (Legislation.gov.au, 2018). It is often noticed that companies usually expand their resources or incur liabilities upon the acquisition, development and maintenance or improving the intangible resources. This includes the technical knowledge, application of new procedure, market knowledge, intellectual property and trademarks comprising of brand names and publishing titles (Russell, 2017). There are certain common examples that are contained under this headings include the, copyrights, patent, list of customers, license of fishing, relationships between customers or suppliers, marketing rights and customer shares.
Paragraph 10 of AASB 138 explains that not every items that is described in paragraph 9 satisfy the definition of intangible assets such as control on particular resource and presence of future economic benefit (Carlon et al., 2015). On noticing that an item of intangible asset does not meet the criteria stated under the scope of standard, the expenditure incurred in acquiring or generating the item is internally recorded as the expenditure when it is incurred. Nevertheless, on noticing that an item is identified within the business combinations, it becomes the part of goodwill identified in the acquisition date.
Investment in New Product Development
Interpretation:
The standard sets out the process of recognizing the intangible assets along with its measure. The standard lay down the requirements for disclosure of intangible assets. The AASB 138 lay down the essential considerations in ascertaining whether a business can categorise the assets as intangible (Hu et al., 2015). The topic which is in discussion in the present report is reinvestment of investment and income obtained after making such investment, fulfils the definition of AASB 138 intangible assets as defined under the standard. Therefore, the investment can be characterised as the intangible asset.
Text:
The conception of Asset is evidently explained under paragraph 4.5, 4.6 and 4.7 of the Conceptual framework. The definition includes the following
Paragraph 4.5: An asset represents the current economic resources that is controlled by a company based on the outcome of the earlier events (Legislation.gov.au, 2018).
Paragraph 4.6: Asset refers to the economic resources or the right that contains the prospective of generating economic benefits (Hoskin et al., 2014).
Paragraph 4.7: The aspects that are discussed under the definitions includes the following;
- Rights
- Potential of generating economic benefits
- Control
As defined under paragraph 4.5 an asset is viewed as the economic resource of the company on which it implements control and the resources represents the outcome of previous investment that is made by the company (Fraser, 2018). Furthermore, under paragraph 4.6 of the conceptual framework the assets contains the potential of generating economic benefit. An item of asset in nature is not presently required to generate income nonetheless if the item possess the potential of generating income in the future then it must be treated as the asset.
The topic of conversation in the present report is the reinvestment of investment as the item that has originated from the investment done by Codan Ltd in Land Mobile Radio along with the previous performance from identical investments. An interpretation in this regard can be made that the investment made by Codan ltd has the potential of producing economic benefit in future. Therefore, the investment can be classified as an asset.
The reinvestment of investment certainly produces economic benefit for an organization however it also accompanies uncertain future outcomes. Any new investment carries a level of exposure to the market risks (Hoyle et al., 2015). The investor’s obligations remains in understanding the strength, weakness, opportunities and threat. The investors not only consider the future economic benefit of an investment but also the risks surrounded by such investment. The investors develops protective measures to circumvent the risk of investment. These are often classified as inherent business risk and may cause an investment to yield negative output.
Recommendations to Codan Ltd can be made to minimize the risks, which are as follows;
- In depth study of previous investment outcomes and understanding the behaviours of market variables
- Recommendations can be made in improving the recruitment of correct engineering sources.
- A recommendations can be made for the creation of provision which would help in compensating any likely loss which might happen due to the external risks involved.
Conclusion:
A conclusion to the report can be drawn by stating that there are certain inherent risks involved in investment. To circumvent those inherent investment risks, business provisions and protective measures can be adopted to avoid any future losses. The new investment decision not only opens up new revenue generating possibilities but also helps in exploring new of areas of business expansion.
References:
AASB 138 – Intangible Assets – July 2004. (2018). Retrieved from https://www.legislation.gov.au/Details/F2015C00233
Aasb.gov.au. (2018). Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf
Annual Reports. (2018). Retrieved from https://codan.com.au/news-media/annual-reports/
Carlon, S., McAlpine-Mladenovic, R., Palm, C., Mitrione, L., Kirk, N., & Wong, L. (2015). Financial accounting: Reporting, analysis and decision making. John Wiley and Sons Australia.
Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.
Fraser, J. (2018). Alternative assets insights: Budget announcements thin capitalisation. Taxation in Australia, 53(2), 90.
Hoskin, R. E., Fizzell, M. R., & Cherry, D. C. (2014). Financial Accounting: a user perspective. Wiley Global Education.
Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.
Hu, F., Percy, M., & Yao, D. (2015). Asset revaluations and earnings management: Evidence from Australian companies. Corporate Ownership and Control, 13(1), 930-939.
Khan, M. (2015). Accounting: Financial. In Encyclopedia of Public Administration and Public Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.
Long, K. (2018). Our Businesses. Retrieved from https://codan.com.au/who-is-codan/our-businesses/
Russell, M. (2017). Management incentives to recognise intangible assets. Accounting & Finance, 57, 211-234.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
