الأربعاء، 25 يناير 2012

Accounting Theory





ACCOUNTING THEORY




By
Dr. Mohamed Abd Elfattah
Associate Professor of Accounting & Auditing
Ain Shams University – Faculty of commerce



Aug. / Sept. 2009











Introduction:
Definition of Theory:
·       The coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry.
·       Theories are composed of words or other symbols…they are statements and do not have a physical form.

Accounting Theory:
Logical reasoning in the form of a set of broad principles that: 
·       Provide a general framework of reference by which accounting practice can be evaluated and,  
·       Guide the development of new practices and procedures (Hendriksen).

What is the Nature of Accounting?

The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of information.

Financial statements:
 generally refer to the four basic financial statements: balance sheet, income statement, statement of cash flows, and statement of changes in owners’ or stockholders’ equity.
Financial reporting is a broader concept; it includes the basic financial statements and any other means of communicating financial and economic data to interested external parties. Examples of financial reporting other than financial reports are annual reports, prospectuses, reports filed with the government, news releases, management forecasts or plans, and descriptions of an enterprise’s social or environmental impact.

Accounting theory Fundamentals:
l    Accounting concepts

l    Accounting bases

l    Accounting policies

l    Accounting standards

l    Concepts
Fundamental assumptions underlying the preparation of financial statements.


l    Bases
Methods developed to apply the concepts to specific transactions.

l    Policies
-        Specific to a particular organization.
-        Chosen on the basis of suitableness.

CONCEPT – Matching principle
                       
BASES – Methods of depreciation (application of matching principle in accounting for non-current assets)

POLICY – Specific choice of method: straight line or reducing balance

Accounting Concepts:

Business entity concept:

l    The business is a separate entity distinct from its owners or managers.

l    This concept requires the careful separation of the financial affairs of the business from its owners and other businesses.
Going concern:

l    An enterprise is normally viewed as a going concern, that is, as continuing in operations for the foreseeable future.

l    It is assumed that the enterprise has no intention to curtail the scale of its operations.

Historical cost:

l    Assets should be recorded initially at cost.

l    Main limitation of using historical cost:

-        In times of inflation, historical costs figures lack relevance and can mislead users of financial information.

-        In order to overcome this limitation, revaluation of assets is allowed as an alternative to historical cost accounting.

Advantages of using historical cost:

-        Historical costs are perceived to be more reliable because they can be verified.
-        The use of historical cost is cost-effective.
-        To use current market value means spending money each time an asset is revalued

Accrual basis of accounting:
l    Income (Revenue) is recognized when earned and not when it is received in cash;

l    Expenses are recognized when incurred and not when they are paid in cash.

Matching concept:
l    Revenue earned must be matched against the expenditure incurred in generating it.

Revenue realization concept:

A sale should be recognized when:

-        The event from which it arises has taken place;
-        Sale is recognized when goods are delivered, or when invoice is prepared.
-        Sale is not recognized when an order is received.
-        The receipt of cash is reasonably certain.
-        Sale on credit should be recognized as income even if cash has not yet been received.

Materiality:
l    Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statement.

Prudence:   

l    Where alternatives exist, one should select the alternative that gives the most cautious presentation of the financial position or result of the business.

l    Assets and profits should not be overstated, but a balance must be achieve to prevent the material overstatement of liabilities and losses.

l    Where a loss is foreseen, it should be anticipated and taken immediately into account.

Monetary principle:

l    Accounting will deal only with those items to which a monetary value can be attributed.
l    Financial statements do not reflect factors that cannot be measured in monetary terms: good management, hardworking members of staff, etc.

Consistency:

l    The items in the financial statement should be presented and classified in the same manner from one period to the next
l    Except under the following cases:

-        There is a significant change in the nature of the operations of the business

-        A review of its financial statement presentation demonstrates that relevance is better achieved by presenting items in a different way

-        A change is required by a new accounting standard.
Substance over form:

l    Some transactions have a real nature that differs from their legal form.

l    Whenever it is legally possible, the real substance should prevail over the legal form.

l    An example is a hire purchase transaction.

l    Legal ownership of an asset on a hire purchase does not pass until the last instalment is paid, but it could be misleading to present a balance sheet in which such assets did not appear until the end of the contract.

The objectives of financial reporting:
 Are to provide (1) information that is useful in investment and credit decisions, (2) information that is useful in assessing cash flow prospects, and (3) information about enterprise resources, claims to those resources, and changes in them.
More specifically these objectives state that financial reporting should provide information:
a.       That is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. The information should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence.
b.       To help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans. Since investors and creditors’ cash flows are related to enterprise cash flows, financial reporting should provide information to help investors, creditors, and other users assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise.
c.        About the economic resources of an enterprise, the claims to those resources (obligations of the enterprise to transfer resources to other entities), owners’ equity, and the effects of transactions, events, and circumstances that change its resources and claims to those resources.





Challenges Facing Financial Accounting:
       Non-financial measurements need to be developed and reported.
       More information needs to be provided regarding soft assets (intangibles).
       Forward-looking information, in addition to historical information, must be provided.
       Statements may have to be prepared on a real-time basis (and not just periodically).

The Expectations Gap:
An expectations gap exists between the
      public’s perception of the profession’s accountability and profession’s perception of its accountability to the public.

Corrective steps include the setting up of the:
      SEC Practice sections and
      Public Oversight Board.

International Accounting Standards:
      The International Accounting Standards Committee (IASC) was formed in 1973.
      The objective was to narrow divergence in international financial reporting.
      There are many similarities between U.S. and International accounting standards.
      The concern is that international standards may not be as rigorous as U.S. standards.






Hierarchy of Accounting Qualities:



Primary Characteristic of Accounting Information: Relevance:
“Relevance of information means information capable of making a difference in a decision context.”

Ingredients of relevant information are:
      Timeliness
      Predictive value
      Feedback value



Reliability:
Information is reliable when it can be relied on to represent the true, underlying situation.

The ingredients of reliable information are:
      verifiability
      representational faithfulness
      neutrality (unbiased)                   
Secondary Characteristics of Accounting Information:

Comparability: the similar measurement and reporting for different enterprises.

Consistency: application of the same accounting treatment to similar events by an enterprise period to period.

















International Financial Reporting Standards (IFRS)
 Are Standards, Interpretations and the Framework for the Preparation and Presentation of Financial Statements (in the absence of a Standard or an Interpretation) adopted by the International Accounting Standards Board (IASB).
In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework. This elevation of the importance of the Framework was added in the 2003 revisions to IAS 8.
International Accounting Standard IAS 8, Paragraph 11provides:
In making the judgement, management shall refer to, and consider the applicability of, the following sources in descending order:
(a) The requirements and guidance in Standards and Interpretations dealing with similar and related issues; and
(b) The definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.
Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). In 2000 IASC Member Bodies approved IASC's restructuring and a new IASC Constitution. In March 2001, IASC Trustees activated Part B of IASC's new Constitution and established a non-profit Delaware corporation, named the International Accounting Standards Committee Foundation, to oversee the IASB. On 1 April 2001, the new IASB took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and SICs. The IASB has continued to develop standards calling the new standards IFRS.



Elements of Financial Statements

a.         Assets: Probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events.

b.         Liabilities: Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to another entities in the future as a result of past transactions or events.

c.          Equity or net assets: residual interest in the assets of an entity that remains after deducting its liabilities in a business enterprise, the equity is the ownership interest.
d.         Increase in net assets of a particular enterprise resulting from transfer to it from other entities of something of value to obtain or increase ownership interest (or equity) in it. Assets are most commonly received as investments by owners, but that which is received may also include services or satisfaction or conversion of liabilities of the enterprise.

e.          Revenues: inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.

f.           Expenses: outflows or other using up of assets or incidences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.

g.         Gains: increase in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those from revenues or investments by owners.
h.         Losses: decrease in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those from expenses or distributions to owners.

i.            Comprehensive income: Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

j.           Earnings: the accounting standards described earnings as excluding certain cumulative accounting adjustments and other non-owners changes in equity that are included in comprehensive income.
Recognition:
Recognition is the process of whether and when an element should be included in the statements, four fundamental recognition criteria apply to all recognition issues:

1.   The item must meet the definition of an element of FS.

2.   It must have a relevant measurable with sufficient reliability.

3.   The information about it must be capable of making a difference in decision.

4.   The information must be representational faithful, verifiable, and neutral.

·      Revenue should be recognized when:

1.   Realized: when goods or services have been exchanged for cash or claims to cash. or,

2.   Realizable: when goods or services gave been exchanged for assets that are readily convertible into cash or claims to cash. And,

3.   Earned: revenue are earned when the earning process has been substantially completed and the entity is entitled to the resulting benefits or revenues.

        Accordingly, the two conditions are usually met when goods are delivered or services are rendered.
·      Expenses and losses are not subject to the realization criteria. Rather, expenses and losses are recognized when :

1.   Consumption of economic benefits occurs during the entity’s primary activities (such as consumption of raw material). Or when,

2.   The ability of existing assets to provide future benefits has been impaired (such as declining in the computer technology). Or when,

3.   A liability has been incurred or increased without benefits. (Such as probable and reasonably estimable contingent liabilities).
·      Measurement: this concept governs the valuation of the items recorded in the financial statements. There are many different methods may be used to measure the assets and liabilities:

a)  Historical cost: is the acquisition price of as asset and subsequently depreciated or amortized. It is relevant to plant assets and most inventories.

b)  Historical proceeds: is the cash & equivalent that is actually received when an obligation was created and may be subsequently amortized. It is relevant to liabilities incurred to provide goods and services to customers such as magazine subscription.
c)   Current (replacement) cost: is the cash or equivalent that would have to be paid for a current acquisition of the same asset. Inventory valued at the lower of cost or market may reflect current cost.

d)  Current market value (exit value): is the cash or equivalent realizable by selling as asset in an orderly liquidation (not in a forced sale). It is used to measure some marketable securities.

e)   Net realizable value: is the cash or equivalent expected to be received for as asset in the due course of business, minus the cost of completion and sale. It used to measure short-term receivables and some inventories.

f)    Net settlement value: is the cash or equivalent that the entity expects to pay to satisfy an obligation in the due course of business. It used to measure trade payables and warranties liabilities.

g)  Present value: is the most relevant method of measurement because it incorporates time value of money concepts. This is required discounting the amount at an appropriate interest rate. It used only for long-term receivables and payables.




·      Revenue recognition

1.         Recognition at the point of sale

a.         Revenue are normally recognized when they are realized or realizable and earned which are ordinarily met at the point of sale (at this time, title and risk of loss usually pass to the buyer) (e.g., FOB shipping point, or destination).

b.         If the recognition criteria are not met, amount received in advance is treated as liabilities (deferred revenue). Recognition is deferred until the obligation under the liability is partially or wholly satisfied.

When cash is received          
       Dr.Cash                                     xx
       Cr. Deferred revenue                            xx
When the obligation is   satisfied
        Dr. Deferred revenue              xx
        Cr. Revenue                                           xx   
2.     Recognition at completion of production

        If products or other assets are readily realizable because they are salable at reliably determinable prices without significant effort. Revenues and some gains or losses may be recognized at completion of production. (Such as certain agricultural products, precious metal, and marketable securities)


3. Recognition when there is a doubt about collectability

a.     Installment method
-        Revenue recognition at the point of cash collection rather than the point of sale. It can only be used when collections are not reasonable assured.

-        The amount recognized each period is the gross profit percentage (gross profit / selling price) on the sale multiplied by cash collected.

-        If the goods sold are repossessed due to nonpayment, the goods’ net realizable value, remaining deferred gross profit and any loss are debited, and the remaining installment receivable credited.
Example:
 T.V costing $600 is sold on the installment basis for a price of $1000 on November 1, 2008. A down payment of $100 was received and remainder is due in nine monthly payments of $100 each. (gross profit % = 40%)

-        When the T.V is sold 
                             Dr. Cash                               100
                                 Dr. Installment receivable  900
                                 Cr. Inventory                              600
                                 Cr. Deferred gross profit          400




-        In December when the first installment is received

        Dr. Cash                                       100
        Cr. Installment receivable                      100

        Dr. Deferred gross profit               80
        Cr. Realized gross profit                           80

-        If the remaining $800 is received in year 2

        Dr. Cash                                        800
        Cr. Installment receivable                  800


        Dr. Deferred gross profit             320
        Cr. Realizes gross profit                       320

-        If the T.V had to be repossessed due to no payments after the down payments, the used TV would be recorded at its net realizable value minus a resale profit. (Assume the fair value = $500 & repair and sales commissions = $100)

        Dr. Inventory                                 400
        Dr. Deferred gross profit             360
        Dr. Loss on repossession               140
        Cr. Installment receivable                           900






4. Long-term construction contracts

a.   Completed-contract method
Under this method, all contract cost are deferred (under construction-in-progress account) until the project is completed and then matches the cost of completing the contract with the revenues from the project. Hence, profit is recognized in the year of completion. Then construction-in-progress is closed to cost of sales.

b.   The percentage-of-completion method
     
Under this method profit is recognized based upon the estimated total profit, the percentage completed, and the profit recognized to date.
-        The estimated total profit =
    Contract price – total estimated costs
-        Total profit  recognized to date =
   % of completion × total expected profit
-        The profit recognized in prior periods subtracted from the total profit to date to determine the profit to be recognized in the current period.
Note:
-        Under both methods, the full estimated loss on any project is recognized as soon as it becomes apparent.






Example:
A Co. has a contract to build a bridge that will take 3 years to complete. The contract price is $2,000,000. The contractor expects total costs to be $1,200,000. The following information applies to the costs incurred & expected to be incurred during the 3 years.

                                     Year 1        year 2              year 3
Cost incurred during
each year                                300,00     600,000   550,000

Cost expected in future  900,000   600,000             0

% of completion:
Year (1):
Date
Explanation
Dr.
Cr.

Constuction in Progress
    Cash / Accounts Payable
300,000


300,000

Date
Explanation
Dr.
Cr.

Constuction in Progress
    Construction Income
200,000


200,000

Year (2):
Date
Explanation
Dr.
Cr.

Constuction in Progress
    Cash / Accounts Payable
600,000


600,000

Date
Explanation
Dr.
Cr.

Constuction in Progress
    Construction Income
100,000


100,000


Year (3):
Date
Explanation
Dr.
Cr.

Constuction in Progress
    Cash / Accounts Payable
550,000


550,000

Date
Explanation
Dr.
Cr.

Cash
    Constuction in Progress
    Construction Income
2,000,000


1,750,000
250,000

Completed- Contracts:
Year (1):
Date
Explanation
Dr.
Cr.

Constuction in Progress
    Cash / Accounts Payable
300,000


300,000

Year (2):
Date
Explanation
Dr.
Cr.

Constuction in Progress
    Cash / Accounts Payable
600,000


600,000

Year (3):

Date
Explanation
Dr.
Cr.

Cash
    Constuction in Progress
    Construction Income
2,000,000


1,450,000
550,000






-        Ordinarily, progress billing are made and payments are received during the term of the contract. Accounts receivable is debited and progress billing is credited. As cash is received, cash is debited and A/R’s is credited. There is no effect on the net income.

-        Progress billing is an offset to construction in progress on the balance sheet. The difference is shown as current assets or current liabilities.

5. Consignment Accounting

        A consignment sale is an arrangement between the owner and a sales agent. Goods on consignment are not sold to agent but rather consigned for possible sale. Accordingly, ownership of goods do not transfer from owner (consignor) to the sales agent (consignee) and sales are recorded on the books of the consignor only when consignee sells the goods to third parties. Cost of transporting the goods to the consignee is inventoriable costs, not selling costs.

EX .1:
Tom and Jerry Corporation shipped $20,000 of merchandize on consignment to Toons Company. Tom and Jerry paid freight cost of $2,000. Toons Company paid $500 for local advertising, which is reimbursable from Tom and Jerry. By year end, 60% of the merchandize had been sold for $22,300. Toons notified Tom and Jerry, retained a 10% commission, and remitted the cash due to Tom and Jerry.
   Prepare Tom and Jerry entries, when the cash is received.
Solution:

Dr.
Cr.
Cash
Advertising expense
Commission expense
   Revenue from consignment sales
Notification of sales and expenses ant remittance of amount due
19,750
500
2,230



22,300
Cost of goods sold
  Inventory on consignment
Adjusting of C.G.S.
($20,000+2,000)× 60%
13,200

13,200

EX.2
On May 3, 2003 Michelle Smith Company consigned 70 freezers, costing $500 each to Angle Martino Company. The cost of shipping the freezers amounted to $840 and was paid by Smith Company. On Dec. 31, 2003, an account sales was received from the consignee, reputing that 40 freezers had been sold for $700 each. Remittance was made by the consignee for the amount due, after deducting a commission of 6%, advertising of $200, and total installation cost of $320 on the freezers sold.
(a)          Compute the inventory value of the units unsold in the hands of the consignee.
(b)          Compute the profit for the consignor for the unit sold.
(c)           Compute the amount of cash that will be remitted by the consignee.


(a)                            The inventory value of the units unsold in the hands of the consignee:
Cost             30 × $500        = $15,000
Shipment    30 × $840 ÷ 70 =      $360
Inventory value                      $15,360


(b)                            The profit for the consignor for the unit sold:
Sales (40 × $700)
Less:
       Origin cost (40× $500)
        Shipment (40×  $840÷70)
         Advertising
           installation
          Commission($28000× 6%)
Profit


$20,000
480
200
320
1,680
$28,000






$22,680
$5,320

(c)                             Cash remitted by consignor:
        $28,000 – ($200+320+1,680) = $25,800













Preparation of Corporate income statement:


The following items are Balances of the income statement of Magy Corporation for the year ended December 31, 2008:

Sales
Beginning inventory balance
Purchases
Ending inventory balance
Salaries expense
Depreciation expense
Rent and utilities expense
Income from Operation of a Discontinued Segment
loss on Disposal of Segment
Extraordinary Gain on Retirement of Bonds
Cumulative Effect of a change in Accounting principle

$1,000,000
100,000
650,000
150,000
55,000
40,000
25,000
90,000
20,000
15,000



(25,000)
Recast the 2008 income statement in proper multi-step From.(Ignore the effect of income tax). 


















Magy Corporation

Income Statement

for the year ended December 31, 2008

Sales
Beginning inventory balance
+Purchases
-Ending inventory balance
Cost of Goods sold
Gross Margin
-Operating Expenses
Salaries expense
Depreciation expense
Rent and utilities expense
Income from Continuing Operations
Discontinued Operations:
Income from Operations of Discontinued Segment
Loss on Disposal of Segment Income Before Extraordinary Items and cumulative Effect of Accounting
Extraordinary Gain on Retirement of Bonds
Cumulative Effect of a change in Accounting principle
Net Income


100,000
650,000
(150,000)




55,000
40,000
25,000
1,000,000



600,000
400,000



(120,000)
280,000

90,000

(20,000)
350,000
15,000
(25,000)
340,000







Fixed Assets
·      Acquisition Cost: represent the capitalized amount of expenditures made to acquire tangible property which will be used for a period of more than one year, used in operation of the business and not intended for resale.
·      Cost includes: all cost necessary to put a fixed asset in place, in condition and the proper time for its intended use. However, amount to be capitalized by dollar amount depends on the materiality and objectives of the company.
Cost of fixed assets purchased from outsiders:

       Invoice price
( - ) Cash discount and any other discount if any
( + ) Fright in and insurance while in transit
( + ) Installation charges including testing and preparation for use
( + ) Sales and federal tax
( + ) Finders’ fees and cost of negotiations
( + ) Interest during construction
( + ) Razing an old building and breaking in






a) The cost of razing of an old building is added to the cost of the land net of scrap sales, if any.
b)According to accounting standards, Interest could be capitalized for long-lived assets that need a period for completion (during construction). Construction period interest should be capitalized based on the weighted average of accumulated expenditures as part of the historical cost of acquiring fixed assets such as:
-        Assets constructed or produced by the company or by other.
-        Land Improvements, however, if a structure is placed on the land, charge the interest cost to the structure not to the land.
Do not capitalize interest cost for:
-        On inventory routinely manufactured, however, capitalize interest on special order goods on hand for sale to customers.
-        On assets held before and after construction period.
-        Interest ceases during intentional delays in construction, however, capitalize interest costs during ordinary delays in construction.
-       
-        Do not reduce capitalized interest by income received on the unexpended portion of loan.


Disclosure required in the financial statements
-        Total interest cost incurred during the period.
-        Capitalized interest cost for the period, if any.
Example: on interest capitalization

X Co. constructed an asset, which qualifies for interest capitalization. By the beginning of July $3,000,000 had been spent on the asset, and an additional $800,000 was spent during July. The following debt was outstanding for the entire month
-         A loan of $2,000,000 with interest 1% per month, specified for the asset.
-         A                                 note payable of $1,500,000 with interest of
     1 ½ % per month.
-         Bond payable of $1,000,000 with interest of 1% per month.
The amount of interest to be capitalized is computed as follows:
1) The average accumulated expenditures for July:
     = (3,000,000 + 3,800,000) / 2 = 3,400,000

Avoidable interest:
Specific interest = 2,000,000 X 1% =   $20,000
Average interest
1,500,000 X 1.5 % = 22,500
1,000,000 X 1%     = 10,000
________                  ______
2,500,000                  32,500
The average interest rate = 32,500 / 2,500,000 = 1.3%
Total expenditures (3,400,000) are financed by:
2,000,000                                                 20,000
1,400,000 X 1.3% =                              18,200
Amount to be capitalized             38,200


Please note:
Interest to be capitalized is the computed interest or the actual interest whichever is lower.
The cost of fixed assets constructed by the company includes:
a.      Direct material and direct labor and variable cost.
b.      Repairs and maintenance during construction.
c.       Overheads including direct items of overheads but not any “idle plant capacity expenses”.

Intangible assets:
a) Intangible assets acquired from other enterprises or individuals should be recorded at cost. However, the cost of intangible assets not acquired from others (developed internally) which are not specifically identifiable or have indeterminate lives should be expensed against income when incurred such as Trademarks, or Goodwill from advertising, or cost of maintaining or restoring goodwill.
b)   Intangible assets should not be recorded when:
-         Is not specifically identifiable.
-         Has an indeterminate or,
-         Is not separable from enterprise such as goodwill.
c)    The value of intangible assets eventually disappears, therefore they should be written off over their estimated benefits. Intangible assets are normally tested annually to determine the expected future benefits.
d)      An examples of intangible assets:
-         Trademarks.
-          Goodwill purchased.
-         Patents and copyright such as registration fees and successful legal defense fees are capitalized as part of cost, but not related to R&D expenses
-          Initial franchise fees.
-          Non-competition agreement & consulting contract.


e)    If patent cost becomes worthless during the year (e.g., due to technological changes or due to an unsuccessful patent defense lawsuit), write off the entire remaining cost to expenses.
f)    If the life of existing intangible is extended in a later year except the goodwill, extend the total life, but not to exceed the future benefits. NBV is amortized over the new remaining life.
g)    If the life of existing intangible is reduced during a later year, remaining NBV is subject to the impairment test annually.