Many internally generated intangibles are not recognized as intangible assets as the cost cannot be measured reliably. Examples include internally generated brands and customer service capability. Often, it is due to inability to differentiate expenditure directly related to a particular intangible asset rather than expenditure used to develop the business as a whole. The inability to measure the cost reliably is also the reason for not being able to capitalize internally generated intangibles. In relation to that, there are several debatable issues concerning the non-recognition of the internally generated intangibles. Among them are:

a) Non-recognition leads to differences between book value and true economic value of firms-Many companies, such as those in the services and hospitality industry, rely a lot on their customer service and marketing capabilities. These capabilities are often internally developed based on the company's experience and knowledge of serving the industry for a number of years. By not being able to capitalize these intangibles, the costs incurred are kept expenses and hence, it is argued as the reason for the differences between book value and true economic value of within firms.

(b) Differences in the treatment between acquired and internally generated intangibles although they are the same assets- the differences in the treatment of similar assets is another factor that calls for debate concerning accounting for intangibles. Internally developed customer lists, often a valuable resource for telecommunication companies, are left out from capitalization of assets. Yet, they are accounted as assets if they were acquired.

(c) Issues of control- issues of control involving internally generated intangibles are often associated with the fact that the internally developed practices, systems or processes, although they bring benefits to the company, are confounded by the inability of the company to control the benefit from being used or replicated by other companies. For example, in terms of marketing capabilities, competitors can easily replicate them.

(d) Valuation issues–the main issue with non-recognition of internally generated intangibles is the problems involving their valuation.

REQUIRED

What improvements could possible made in order to settle down the issues.

Answer rating: 100% (QA)

Internally Generated Intangible Asset The cost of an internally generated intangible asset for the p... View the full answer