Accounting for Intangible Assets

Name:

Institution:

Question: Do you agree or disagree with the managing director’s views and provide an explanation for why he may have taken the view that he has.

Answer:

I agree with the views of the managing director. He is of the option that non-capital spending in the course of that year has actively contributed to the development of intellectual capital in the company. The reason that may have made him view the spending in this light is because non-capital spending does not meet the capital expenditure criteria. Non-capital expenditure always has a lower cost as well as shorter but useful lifespan. It is an intangible expenditure that contributes a lot in making a company develops.

The managing director also suggests that he expects further increases in market value in the future. In this regard, he does not expect any amortization of the total capitalized amounts in the company. The main reason that might have prompted this opinion is that the market value of the company exceeds the company’s book value by far. Thus, this has led to value addition towards the company and need to be capitalized in total as intellectual capital.

There is a firm confidence in the managing director that all the projects that are ongoing in the company will be concluded in a successful manner. Though the projects have not reached the commercial stage yet, completion will be a simple task. This is because the company is not operating on a loss. The other factor that might have prompted him to assume this is because the value of the company has increased. Non-capital spending has been lower than capital spending thus ensuring that the company’s financial muscle is still strong.

Reference

Penman, S. H. (2009). Accounting for intangible assets.