(1a) In IAS 38 and ASSB 138 an intangible asset is an identifiable non-monetary asset without physical substance. In an entity they are the long-term resources which are valued from the entity (Dtf.vic.gov.au, 2019). To recognize any intangible asset there are two criteria to be full filled

1. It should fit the definition of intangible assets

• Identifiability – the asset is distinct from the entity
• Control – to have the complete control of an asset
• Benefits – the asset will provide future economic benefits by revenue, cost-saving and other benefits from the use of assets

2. It should fit the recognition criteria

• Expected future economic benefits
• Cost of the asset can be measured reliably

Intangible assets which are generated internally is difficult to assess for recognition as problems can be if the asset will generate expected future economic benefits and determining the cost of the asset reliably. Internally generated assets are classified into two classification research and development (Cpaaustralia.com.au, 2019).

Research is an original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. The Research phase is described as no intangible asset arising from research (or from the research phase of an internal project) shall be recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred. In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. Therefore, this expenditure is recognised as an expense when it is incurred (Aasb.gov.au, 2019).

Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use. The development phase is described as an intangible asset arising from development (or from the development phase of an internal project) shall be recognised if the below criteria is met and will be recognised as the cost of an intangible asset

• The technical feasibility of completing the intangible asset so that it will be available for use or sale.
• Its intention to complete the intangible asset and use or sell it.
• Its ability to use or sell the intangible asset.
• How the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
• The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
• Its ability to measure reliably the expenditure attributable to the intangible asset during its development (Aasb.gov.au, 2019).

(1b) The new computer program developed by Large Mart which cost $100,000 and achieves summarizing the content of a university lecture will be considered as development expenditure as it fits all the criterion of it, where the intention of development is to sell it, there is expected demand seeking for this product in the development phase, technical team of Large Mart is has the technical knowledge and expenditures were measured reliably. This development expenditure during the period is to be accounted by cost model as there are no references in active marketing which after initial recognition carries at cost less accumulated amortization and impairment losses and will be disclosed by the entity (Aasb.gov.au, 2019).

(2a) The Cost of goods sold which is reported in the income statement of the entity and is generally understood as the cost which is incurred in the manufacturing of a product until it is sold. For an internally generated intangible asset the sum of cost is capitalized which has incurred from the development stage (meeting all the criteria) disregarding all the expenditures which were previously recognised as expense. The cost is an accumulation of all direct cost which is essential to create, produce and prepare the asset for operations intended. Cost of material used or consumer for generation of the asset, cost of employee benefits, fees to register legal right, and amortization of patents and licenses. Whereas, cost like selling, administrative and other overheads which have general expenditure nature, identified inefficiencies and initial operating losses and training expenditure for staff (Aasb.gov.au, 2019). The cost of goods sold for 25,000 copies will consider only the production cost of the CDs. The nature of the asset which is being sold for multiple does not have any cost on its head due to its capitalization, though the packaging is a cost which is to be recognised separately as it did not incur in creation, production or preparation of the asset.

(2b) Retirements or disposal of an intangible asset shall be done where no future economic benefits are expected from its use. The gain or loss which arises from the process of de-recognition will be determined as the difference between the net disposal proceeds, resulting in profit or loss in the financial books. It will occur when an intangible asset will be disposed of in various ways like (sale, lease or donation). The date when the entity loses control over the asset it is disposed of in the financial books (Aasb.gov.au, 2019). The fair value is to be determined before selling all the rights of the software to UNE it can be a tricky process for Large Mart due to no reference point in the market. The scenario where Large Mart is selling 25,000 copies of the software to UNE differs from the sale of purchasing all the rights for the software as when selling copies of the CDs the entity will have the rights over the developed software which is recorded as an intangible asset in the financial books of the company. Control and rights will stay with large mart as compared to disposal of the asset. This could be profitable for a company where they do not forecast any future economic benefits from this asset that selling the intangible asset and all of its right will differ as the asset cost will be written off from the accounting books this would reflect as asset sold whereas, the copies of software would reflect profit on product.

Part B (1)

(2)

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