Assessment Type: Individual assessment – research report.

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Purpose: Assess student’s knowledge of relevant accounting standards. Students are required to prepare a research report which evaluates their interpretation of accounting standards. This assessment relates to learning outcomes a,b,c,d and e.
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Value: 20% Due Date: Week 10
Topic: Australian Accounting Standards Analysis.
Task Details: Students are required to attempt the following questions.
Question 1
Wayne Upton (2001,p.71) in his discussion of the lives of intangible assets noted that the formula for Coca-Cola has grown more valuable over time,not less,and that Sir David Tweedie, former chairman of the IASB, jokes that the brand name of his favorite Scotch whisky is older than the United states of America- and,in Sir David’s view, the formula for Scotch whisky has contributed more to the sum of human happiness.
Required
Outline the accounting for brands under AASB 138IAS 38, and discuss the difficulties for standards setters in allowing the recognition of all brands and formulas on statements of financial position.
Question 2
GU and Lev (2011) argue that the root cause of many goodwill write-offs is that the shares of the buyer are overpriced at the acquisition date.
Figure 7.1 presents eBay’s cumulative stock return against the S&P 500 index from 2003. in mid September 2005 , eBay acquired the internet phone company Skype for $2.6 billion. On 1 October 2007,it announced a massive goodwill write-off of $ 1.43 billion (55% of the acquisition price) related to the Skype acquisition.
Gu and Lew argue that the root cause of this behavior is the incentives of managers of overvalued firms to acquire businesses, whether to exploit the overpricing for shareholder’s benefit or to justify and prolong the overpricing to maintain a facade of growth. Goodwill write-offs are accordingly an important business event signalling a flawed investment strategy.
Required:
a) Explain the circumstances under which goodwill is recognized and how any subsequent write -off occurs under AASB 136.
b) Explain why a significant goodwill write-off may signal a ‘forward investment strategy”

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