Question

Criteria for Intangible Asset Recognition. In preparation for the annual meeting of Barker County, the finance committee was meeting to discuss the financial reports that would be presented to the Board of Commissioners. The committee included a newly elected commissioner, Michelle Backin, who graduated about 15 years ago with a business degree from the local college. After a long discussion about why the presentation of the financial information was so different from what she had learned in her accounting principles course, the county treasurer, Jack Black, was wrapping up the meeting.
"Are there any final questions from anyone on the committee?" Jack asked. Michelle raised her hand.

"I just have one more question. Since the county has the power to tax, shouldn't there be an intangible asset in the government-wide financial statements that reflects the value of that power? Isn't it similar to owning a patent or trademark that allows you to produce future revenue? And I know that patents and trademarks are intangible assets."

Jack looks at you, and says "Why don't you answer this question for Michelle?"

Required

a) First, present to Michelle the requirements that need to be met for an intangible asset to be recorded in the county's financial statements. Your discussion should be in language that a person without significant accounting knowledge would understand.

b) Using those requirements, explain in detail whether the power to tax meets the definition of an intangible asset.

c) Is there a point in time when the power to tax creates an asset? Explain.

Answer 1

Answer:

a)1. An intangible asset must have the characteristics of an asset.

2. Probable future economic benefits from the intangible assets should be assessed.

3.To be recognized as an asset in the books, it is essential that the cost can be measured reliably.

b)The power to tax does not meets the definition of an intangible asset as the recognition criteria are not fulfilled.

c)There is no point in time when the power to tax creates an asset.

Explanation:

a) The requirements that need to be met for an intangible asset to be recorded in the county's financial statements are

1. An intangible asset must have the characteristics of an asset.

2. Probable future economic benefits from the intangible assets should be assessed.

3.To be recognized as an asset in the books, it is essential that the cost can be measured reliably.

In simple terms, the requirements are it should be controlled by an enterprise as a result of past event and from which future cash flows should flow to the enterprise.

To recognize it we should be able to assess how the cash flows.

Should be able measure the cost.

b) The power to tax does not meets the definition of an intangible asset as the recognition criteria are not fulfilled. Its cost cannot be measured reliably.

The amount of future cash flows cannot be identified and there is no past event which is controlled by it.

c) There is no point in time when the power to tax creates an asset.