Which One Will Bring More Economic Benefits - Heritage, Tangible and Intangible Assets - Assignment Example

Name: Tutor: Title: ASSET RECOGNITION Course: Date: Asset Recognition Question One The intangible asset is bound to bring in more income for an infinite time as compared to mining. Resources that are being mined cannot multiply and they will eventually be depleted. Tourism and cultural heritage will continue to reap benefits for an infinite time unless a person kills all the Aboriginal people and destroys the natural habitat for animals. Mining can bring in a lot of money in the first years but the resources will be eventually be depleted. The intangible assets will serve the government and the local people for an infinite time. Natural resources like uranium will soon be depleted and the environmental concern it causes are better avoided. The intangible asset has no any foreseeable future and the returns anticipated may increase over time instead of being depleted. It is not easy to estimate the real value of the uranium deposits. The time of depletion may be sooner than expected owing to the inability to estimate the real amount of deposit underground. The intangible assets are for posterity while uranium exploit will lead environmental degradation and contributing to global warning. Although the cost of preservation of intangible asset is estimated at $435 million and the value of the mineral is $102 million dollars, the benefits obtained from the intangible assets will eventually cover the costs and bring is profits. The goodwill from the intangible resource will last for an eternity so long as it is preserved. (a) Tangible assets Uranium Sandstone plateau National park (b) Intangible assets Wildlife Tourist (c) Heritage assets Aboriginal cultural heritage Geological formation and wildlife Question Two Uranium meets the threshold of Conceptual Framework recognition definition test. An asset should be a resource that is controlled by the business entity as a result of past events and from where future economic benefits are anticipated to flow to the entity. It is stressed that the benefits have to arise from past events and consequently future economic benefits have to be anticipated to flow to the entity. The action of the government of ascertaining the deposits of uranium and setting up the site as a national resource is a sure step of past events involved in the assets being defined as assets (Lev, 2001). The useful life of the intangible asset has to be determined to decide if it is infinite or not. The deposit of uranium can be determined and its mining estimated over a future period of time. More importantly, the entity has power to control the mining of uranium without allowing interference from third parties. The value of uranium can be determined and exchanged for exact prices of other products. The produce from uranium mining can be used to settle liabilities as required by the Conceptual Framework recognition test. The future economic benefits from the mining of the uranium will be directed and controlled by an entity which is the Australian government. The past event in this case is the step to gazette the mining site and national property of the government of Australia. The transaction occurred that gave the entity power to control or be entitled to the future economic benefits. The government will also have the legal right to the resource as stipulated in the framework. The potential of the resource to contribute to the objectives of the entity has to be a prima consideration. Uranium will definite contribute to the objectives of the entity which is the Australia government (Hayn & Hughes, 2006). Uranium can be sold to for money gain and the proceeds used to acquire other things for the entity. The sandstone can also be mined and sold. The government has also the legal rights of mining and exporting sandstone. Tourism can recognized as an intangible asset since the national park will definitely attract tourist who will come to enjoy the beautiful scenery. An intangible asset has to have infinite life from analysis of factors. There should be no foreseeable limit to the term where the asset is anticipated to generate net cash flows for the entity. Tourism depends on the natural beauty of Kakadu and the many specials of mammals and birds present. If well taken of the natural beauty that attracts tourist will last for generations and generations to come. There is no foreseeable future for generation of cash flows from the tourism activities that will be witnessed in this place. The intangible asset’s useful life has to arise from the contractual or any other legal binding. The tourism arose when the government gazettes Kakadu as a national park. The place was set aside for tourism activities both local and international. It also asserted that the residual value of intangible asset useful life has to be assumed to be zero unless a third party commits himself to buy the asset at the end of its useful life. Besides, there should be an active market for the asset and its residual value can be referred to the market value. Wildlife will also fit in this category since they are many uses that are economical which can be attributed to the wildlife in Kakadu area. If the place is well conserved the benefits that will be drawn from form wildlife and tourist activities will be endless. Game hunting and use of natural trees for medicinal value will be some of the benefits drawn from the wildlife sector. Question Three From the assets identified, uranium and sandstone can meet the recognition test under conceptual framework. Under the recognition of assets, assets are recognized in financial position statement when and only when is possible that the future economic benefits will certainly flow to the entity, and the asset have a cost or a value that can be measured reliably. Indicators of probable include the chance of benefits will definitely flow to the entity being more than 50%; and the assets can be expected on the basis of the available logic or evidence. Indicators of reliable measurement include a valuation method that is free from bias and error; and faithful representation of the asset. Moreover, reliable information will, without undue error or bias, faithfully represent those transactions and events. Uranium and sandstone will meet the recognition test since their benefits can be measured into a foreseeable future (Stolowy & Lebas, 2006). The recognition terms states that the entity benefits’ from the assets can be denied from being enjoyed by others. The entity alone should be the one to enjoy the benefits. Uranium can be used to obtain other goods when it is exchanged. Australia can exchange uranium for other products from other countries. Uranium and sandstone can be indicated on the statements of the financial position of the company since the cash flows from them is directed to the company and the value of the deposits can be determined into a foreseeable future. Tourism can be stated under the explanation in the financial statements of the entity. The value of the service cannot be calculated into the foreseeable future. Question Four Heritage assets are those assets with artistic, historic, scientific, environmental, or geophysical qualities that are maintained and held primarily for their contribution to culture and knowledge and the purpose is central to the objectives of the entity in its possession. The Aboriginal culture has artistic and historic qualities that have span over a long period of time. The rich Aboriginal cultural heritage can be used as a source of income when people troop to the villages to learn about the indigenous people way of life (Dagwell, 2007). There are subjects being taught in schools in the world about the Aboriginal people and Australia services as a perfect example. Traditional values and artifacts kept by the Aboriginal people forms an important part of the cultural heritage resource. The benefit drawn from this will continue to flow as long as the Aboriginal communities are still alive. The beauty of the place also consists of heritage asset and continues to draw customers to the place that come to admire the scenery. The national park can as well be classified as a heritage asset. Heritage assets are also described as inalienable. This means that the entity has no right to dispose of them without seeking external consent (Hayn & Hughes, 2006). The preservation of the heritage assets deeply concerns the indigenous people of Kakadu and nothing can be done on the assets without consulting them. The government reluctance to exploit the minerals comes from the awareness of the importance of the heritage assets to the culture and existence of the Aboriginal people. The important feature of inalienability is that it makes sure that an asset is prevented from being readily realizable. This is the case in the event of the Aboriginal culture and the wildlife in the Kakadu national part. The communities around have a stake in it and the government cannot do whatever it pleases without thinking about them. Question Five The real value of the heritage assets cannot be ascertained since there is no way of valuing heritage assets. Inability to value heritage and intangible assets has disadvantaged the case of preservation since there is no correct figure of the amount to be set aside for preservation. The preservation of the heritage and intangible assets is more like having a provision account to deal with any contingencies that may happen. Accidents and figure can easily be dealt with if there is a specific amount of provisions set aside (Stolowy & Lebas, 2006). Financial information has to be sufficient and timely to influence economic decisions of the users and their assessment of stewardship of management. Inability to value heritage and intangible assets disadvantages the case for preservation since an exact amount of contingency cannot be estimated. The real value of the assets assists in the estimation of the amount money to be set aside for preservation. Inability to ascertain the fair value of the assets is a big impediment towards their preservation. For instance, bad debts have provisions for bad debts in the business entity since the value of bad debts can be estimated using the debts present and their willingness to pay. Since the value of most heritage and intangible assets in the case cannot be determined, the impact of drought, diseases, and human activity cannot be accurately determined (Picker, 2009). The provisions for preservation could have been calculated as a percentage of the total value of the assets. Inability for the assets to meet the fair value measurement criteria is a big disadvantage. Contingencies as a result of natural disasters like floods and famine can best be tackled when the value of the property of asset estimated to be destroyed is known. However, the government and stakeholders can deal with the any problems that may come along but not in the most effective way as compared to when reliable value of the heritage and intangible assets is determined. Question Six Fair value is a measurement that is market-based and not an entity-specific measurement. For some liabilities and assets, market transactions that are observable and market information may not be available whereas for some, it may be available. The goal of fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would happen between participants in the market at the date of measurement under prevailing market conditions (Sutton, 2004). The geological formations, animals, plants, animals and minerals of Kakadu can hardly meet these conditions of fair value measurement. Geological formation can hardly be measured in monetary terms but the importance and value cannot be overlooked when it comes to heritage assets. There is precisely no identical asset that can be used to estimate the fair value of such assets like geological formations and animals. In the absence of liability or asset that is observable, the entity has to measure fair value using an alternative valuation technique which maximizes the application of relevant observable inputs and at the same time minimizes the use of inputs that are not observable (Beatty & Weber, 2006). Fair value is market-based measurement that can be measured using the assumptions that participants in the market would use when pricing the liability and asset, inclusive of the assumption concerning risk. The unique plants geological formations, minerals, and plants in Kakadu will hardly pass the active market test of AASB 13 Fair Value Measurement since estimation of their market value is very hard to find. Identical items in the market that can be used in their valuation are impossible to find. The unique features that these assets possess should at least be compared to other assets that exist in the market. The value of a geological formation cannot be estimated since they are unique and finding an identical asset in the market with the same value is very hard. The benefits from the assets can be seen through the collection of revenue from tourists and the other importance that the local communities draw from these assets. Mountain formation can be sources of rivers which forms the water table of the villages. The fair value of such assets is hard to estimate. Since the assets have been described as unique, it is not possible to get identical assets in the market which can have their value estimated on that basis (Foster, Fletcher & Stout, 2003). The observable inputs that should give an alternative method of measurement of fair value are hardly present. Therefore, the measurement of fair value becomes for the mentioned geological formation, minerals, plants, and animals become very hard and almost impossible. The assets will not pass the active market test for AASB 13 Fair Value Measurement. Absence of identical assets in the market which can be compared is an impediment towards the measurement of fair value. The benefits of these assets can be measured in terms of the contribution they make to the society, and also they cannot be quantified in monetary terms using observable characteristics. Bibliography Beatty, A. & Weber, J 2006, Accounting Discretion in Fair Value Estimates: An Examination of SFAS 142 Goodwill Impairment, Journal of Accounting Research 44 (2): 257-288. Foster, B.P., Fletcher, R. & Stout, WD 2003, Valuing Intangible Assets, The CPA Journal 73 (10): 50-54. Hayn, C. & Hughes, P., 2006, Leading Indicators of Goodwill Impair, Journal of Accounting, Auditing and Finance 21 (3): 223-265. Lev, B 2001, Intangibles: Management, Measuring and Recording, Washington, DC, Brookings Institution Press. Sutton, T 2004, Corporate Financial Accounting and Reporting, (2nd Ed), Harlow, England, Prentice Hall. Picker, R 2009, Australian Accounting Standards, John Wiley & Sons Australia, Limited, Sydney. Stolowy, H. & Lebas, M 2006, Financial Accounting and Reporting: A Global Perspective, Cengage Learning EMEA. Dagwell, R 2007, Corporate Accounting in Australia, UNSW Press, Victoria. Read More