GROUP ASSIGMENT DETAILS ON THE ACTUAL CASE OF ACCOUNTING ON INTANGILE ASSETS

GROUP ASSIGMENT tháng 10 năm 2022 TABLE OF CONTENTS PART 1 DETAILS ON THE ACTUAL CASE OF ACCOUNTING ON INTANGILE ASSETS 1 1 1 Accounting on intangible assets of Vinamilk 1 1 2 Case study analyst 3 PAR[.]

GROUP ASSIGMENT

tháng 10 năm 2022

TABLE OF CONTENTS

PART 1 DETAILS ON THE ACTUAL CASE OF ACCOUNTING ON

INTANGILE ASSETS 1

1.1 Accounting on intangible assets of Vinamilk 1

1.2 Case study analyst 3

PART 2 ACCOUNTING PROCEDURE ON INTANGILE ASSETS 4

2.1 Accounting standard – VAS and IAS for intangible assets 4

2.2 Accounting procedures applied on Intangile assets for ERP systems 6

PART 3 SOLUTION OF VINAMILK ON CAPITALIZATION ON INTANGIBLE ASSETS 9

CONCLUSION 12

REFERENCE 13

The role of intangible assets in socio-economic development is shown by its increasing proportion compared to tangible assets For example, according to the 1982 census, about 62% of the assets of businesses in the United States were tangible assets, but by 2000 this proportion had decreased to only 30% In a survey of 284 enterprises in Japan in 1993, the value of intangible assets accounted for 45.2% of the total assets of enterprises Dbhalling's research results published on May 24, 2011, citing sources from the US Patent and Trademark Office, showed that Coca Cola business has a total market capital of 110.4 billion USD, of which the Visual assets (factories, offices, machinery, equipment, ) only accounted for 25.3 billion USD, so the value of intangible assets of Coca Cola reached 85.1 billion USD (accounting for 77.08% total capital) Coca Cola has two highly valuable intangible assets, the "secret recipe" for making drinks and the brand (Coke® and Coca Cola®) Other studies also show that McDonald's intangible assets account for 71% of total assets, Disney accounts for 68% of total assets In Vietnam, companies nowadays has recorded more and more intangible assets

PART 1 DETAILS ON THE ACTUAL CASE OF ACCOUNTING ON INTANGILE ASSETS

1.1 Accounting on intangible assets of Vinamilk

THE APPLICATION OF ENTERPRISE RESOURCE PLANNING (ERP)

SYSTEMS ON THE OPERATION OF VINAMILK

Vinamilk’s operation before ERP application:

Before Vinamilk's ERP system was applied to production and business management activities, only using manual tools such as excel or old software such as Foxpro in management caused many difficulties to Vinamilk Directly affecting business operations:

Input and output goods are managed entirely manually, causing the factory

to face problems such as: goods are in stock in large quantities while the consumption rate of output products is too slow, not optimal optimize the working capacity and operation of machines, equipment, workers, etc Hence, it costs the whole production process of Vinamilk, directly affecting the profit of the organization

Accounting activities by manual method face many difficulties with a large number of archived papers, prone to errors, leading to unexpected loss and damage

There is no synchronization in control between stages from production to order processing and accounting, leading to an increase in production costs, warehousing costs, and inventory

In addition, the management software used between departments is different, when there is a need to hand over work information and data between departments and departments, users have to manipulate it manually, causing problems It used to take a lot of time and effort, but productivity is low, data is not synchronized, and be easy to lose

Application of ERP at Vinamilk:

Faced with the challenges of human resource planning, since 2007 Vinamilk's ERP system has been officially implemented The system creates a work management platform across departments and divisions in the company

 Vinamilk's ERP system supports managers to accurately assess the work efficiency that each employee brings When an employee updates the new job status, the manager also receives a notification This ensures continuous, specific information capture On the other hand, ERP also analyzes the collected data to propose plans and directions to solve difficulties for businesses For example, inefficient positions will be eliminated, replaced by a new, leaner, less risky process

 One of the outstanding features of ERP software is automatic payment according to business settings As soon as the deadline comes, the payment to the supplier or partner will be automatically done by the system

 Vinamilk's products have a great influence on consumers' health Therefore, the task of quality control from raw materials, processing, packaging to shipping is always on the top With the ERP system, managers and leaders can easily capture the overview anytime, anywhere From there, they make the most accurate decisions to optimize the workflow

 Vinamilk is supplying the domestic and international markets with about 200 different product lines Each product line has its own price policy, discount offers… Over time, they put a lot of pressure on control and statistics At this time, the ability to automate and simplify the business of ERP is considered a superior solution It helps the company overcome all difficulties, significantly increase productivity and revenue

Full package of ERP systems

1.2 Case study analyst

In Vietnam, capitalization of software or computer systems as long-term assets is still brand new issue Value of hardware and software if it meets the standards of identification of tangible fixed assets, intangible fixed assets as prescribed and has documents proving their ownership and approved by a competent authority In Vietnam, when determining the lawful ownership of this property, it shall be depreciated according to regulations

According to the provisions of Vietnam Valuation Standards, intangible assets of enterprises, organizations and individuals are classified into the following 5 groups:

 Intellectual property (brand, trademark, Slogan, reputation )

 Intellectual property rights in accordance with the law on intellectual property (copyright, industrial property rights, )

 Non-contractual relationships bring economic benefits to the parties, relationships with customers, suppliers or other entities (customer lists, databases )

 The right to bring economic benefits to the parties is specified in the civil contract in accordance with the law (the right to exploit minerals, the right to do business, the right to emit emissions is transferable)

 Other intangible assets

ERP systems is still new for intangile assets in Vietnam ERP software varies significantly from introductory inventory or accounting software in that it provides functionality across all business operations This includes inventory management, accounting, order entry and processing, warehouse management, contact management, eCommerce integration, barcode scanning and more If your business has become frustrated with managing multiple, standalone solutions, if you’re looking to start selling through new sales channels or have reached user and data limits within your existing system, it’s time to consider ERP software However, it’s important to note that with this decision comes an increase in costs – and rightfully so With more functionality, more automation, robust reporting and integration opportunities, the costs associated with using and setting up ERP are not comparable and can vary significantly from one vendor to the next and from one company to the next Most software systems include costs for software licenses and implementation costs

Due to applicable accounting standards, the intrinsic value a startup associates with an IT or intangible asset will rarely be seen on a balance sheet When considering the value of intangible assets, we often think of the future revenues an asset will generate (either through its sale or its use to increase ones’ sales), or in terms of the costs incurred to acquire, create and develop the asset

Vinamilk selected the way of accounting on capitalization of ERP systems

PART 2 ACCOUNTING PROCEDURE ON INTANGILE ASSETS

2.1 Accounting standard – VAS and IAS for intangible assets

Vietnam accounting standard (VAS04)

The Vietnam Accounting Standards for intangible assets (VAS 04) were issued in accordance with Decision No 149/2001 / QD-BTC dated December 31, 2001 by the Minister of Finance, which has taken effect from January 1, 2002 The objective of VAS 04 is to provide principles and accouting requirements for intangible assets The main issues dealt in this article are distinguishing intangible assets from intangible resources and when intangible assets are recorded

Tangible and intangible fixed assets are the same in terms of recognition conditions of an asset in general, that is, it must generate future economic benefits and must be valued at the same time satisfying the criteria of value and usage time However, the fundamental difference between these two types of assets is that there is a physical form and no physical form Tangible fixed assets all exist in the form of specific physical objects such as buildings, vehicles, machinery and equipment, etc., and their existence is very clear Meanwhile, intangible fixed assets are assets that exist under physical objects whose value is quite small (such as magnetic tapes, magnetic disks, certificates, ) but the economic benefits it brings are greater so many The difference between tangible and intangible fixed assets is quite clear, but in enterprises (enterprises) there are intangible resources (with value and no physical form), so distinguishing intangible fixed assets from resources Intangible assets are necessary in order to present information about intangible fixed assets in the most honest and reasonable financial statements

The following four recognition criteria:

 It is certain that future economic benefits will be obtained from the asset: Future economic benefits that intangible fixed assets bring to enterprises may include: Increased revenue, cost savings, or other benefits, derived from the use of intangible fixed assets If the intangible fixed asset no longer brings economic benefits in the future,

it will not continue to be recognised For example, an enterprise buys the copyright to a recipe for a beverage with a value of VND 200 million and in the third year, the enterprise decides not to use this recipe for business activities because it cannot sell goods, so no longer recognize this copyright as an intangible fixed asset Or the enterprise buys the right to exploit the market share of VND 200 million and terminates after one year due to failure in exploitation, then the value of the mining right of VND 100 million will no longer be recorded as an intangible fixed asset

 The historical cost of an asset must be measured reliably: Enterprises are not allowed to self-record the value of intangible fixed assets, the historical cost of intangible fixed assets is recorded on a reliable basis Intangible fixed assets must have lawful documents to determine the value of formed assets Some enterprises own famous brands in the world such as Louis Vuiton, Hermes Apple, Honda, Samsung, etc The brand value is great, but the enterprises themselves have created over time and prestige, so they cannot be determined value of the brand, therefore, according to accounting standards, intangible fixed assets cannot be recognized

 Estimated use time over 1 year: Intangible fixed assets must be assets with long-term use, participating in many business operation cycles

 Satisfy the value criteria according to current regulations: Distinguishing intangible fixed assets from other intangible resources

In addition, VAS 04 also distinguishes intangible fixed assets from other intangible resources in the factors that are identifiable, ability to control resources and certainty of future economic benefits

International accounting standard (IAS 38)

AS 38 Intangible Assets outlines the accounting requirements for intangible assets, which are non-monetary assets which are without physical substance and identifiable (either being separable or arising from contractual or other legal rights) Intangible assets meeting the relevant recognition criteria are initially measured at cost, subsequently measured at cost or using the revaluation model, and amortised on a systematic basis over their useful lives (unless the asset has an indefinite useful life, in which case it is not amortised)

IAS 38 was revised in March 2004 and applies to intangible assets acquired in business combinations occurring on or after 31 March 2004, or otherwise to other intangible assets for annual periods beginning on or after 31 March 2004

 Intangible asset: an identifiable non-monetary asset without physical substance An asset is a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected [IAS 38.8] Thus, the three critical attributes of an intangible asset are:

 Identifiability control (power to obtain benefits from the asset) future economic benefits (such as revenues or reduced future costs)

Identifiability: an intangible asset is identifiable when it: [IAS 38.12]

 is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together with

a related contract) or

 arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations

Examples of intangible assets: patented technology, computer software, databases and trade secrets trademarks, trade dress, newspaper mastheads, internet domains video and audiovisual material (e.g motion pictures, television programmes) customer lists mortgage servicing rights licensing, royalty and standstill agreements import quotas franchise agreements customer and supplier relationships (including customer lists) marketing rights

2.2 Accounting procedures applied on Intangile assets for ERP systems

Intangible assets are typically nonphysical assets used over the long-term Intangible assets are often intellectual assets, and as a result, it's difficult

to assign a value to them because of the uncertainty of future benefits

Capitalization of ERP systems includé:

Capitalization of ERP = ERP systems prices + ERP implementation costs

ERP software implementation costs

Software implementation costs are the one-time fees associated with setting up a new software solution and typically include the cost of training employees on how to use the new software, the cost of moving data from any existing systems or spreadsheets into the new system (also known as data migration) and the cost of actually setting up the server environment and configuring the system for your specific company needs

Training costs:

Training costs tend to make up a significant portion of implementation costs At ERP we estimate these numbers based mostly on users, however, other factors that can have an impact on costs For example, training a large number

of people at the same time tends to require more time and effort (for fielding questions etc.), and how quickly training goes will also depend on how familiar your team is with using software, and whether they can dedicate time to focus solely on training (as opposed to getting caught up with day-to-day tasks and pulled into other meetings) To make the training go as smoothly as possible, employees must have the time to dedicate to learning ERP without other distractions

Data Migration

Data migration is the process of moving company data from your existing systems (accounting, inventory, eCommerce and spreadsheets) into ERP ERP At a minimum, you should consider migrating the following data:

 Customers with outstanding balances

 Outstanding AR balances

 Vendors

 AP balances

 Active inventory items

 Pricing information

 General ledger balances

 Opening entries