In recent years, there has been increasing concern about the inadequacies of historical cost financial statements. One particular area that has been the focus of attention is that of “intellectual capital”—the value of knowledge/know-how that firm’ employees have.
For example, much of the value of a software company may be attributable to the ability of its programmers and designers to come up with popular new products on a regular basis. Critics of historical cost accounting propose that companies’ balance sheets should include the value of intellectual capital.
Required:
Discuss die conceptual issues surrounding the proposed capitalization of intellectual capital as an asset on the balance sheet.