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On the Treatment of Intangible Assets in National Accounting

On the Treatment of Intangible Assets in National Accounting. Itsuo Sakuma Senshu University. World 1 the world of physical states or processes World 2 the world of mental states or processes World 3 the world of the products of human minds

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On the Treatment of Intangible Assets in National Accounting

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  1. On the Treatment of Intangible Assets in National Accounting Itsuo Sakuma Senshu University

  2. World 1the world of physical states or processes • World 2the world of mental states or processes • World 3the world of the products of human minds • How to treat “Output” (?) to the World 3 may be the focus. Popper’s three worlds

  3. Work of Art and Production Boundary of SNA

  4. 93SNA’s Production Boundary ? World 3 World 2 World 1 The location of Production Boundary and the Three Worlds

  5. Knowledge creation is unique, non-reproducible. “Third Party (Person) Criterion” tells us that it is not economic production. Thus, Shakespeare could not have asked someone to write Hamlet for him. • Knowledge creation is not something done under the control of some institutional unit. It is because of its autonomy and the Popperian evolutionary processes involved. Is the “output” to the World 3 economic production?

  6. In passing, • The “output” to the World 2 is also questionable!! • Are mental changes really the economic output of certain services? • Or, better described as the outcome of the services. How about the World 2?

  7. Two categories of intangible assets • Intangible fixed assets • Intangible non-produced assets BAD NAMING • Because financial assets as well are intangible and non-produced Terms

  8. Computer software (copies)is tangible. • Because it is a component of the machine. • To be “machine-readable,” it needs to be a tangible object!! Intangible Fixed Assets

  9. As far as R&D etc. and originals are concerned, it is possible to consider that they are capital items in that they are similar to work-in-progress-type expenditures.(or they are preparatory work to the later stages of production) • Naturally, it matters whether the expenditures are part of a continued process if they are to be the work-in-progress to some later stages of production. Intangible Fixed Assets (Work-in-progress Approach)

  10. Failed mineral exploration should be regarded as a capital item only if it can be deemed to be part of a continued process. • It is not sufficient that the same institutional unit operates the exploration projects. • If this rule is not followed, official statistics may lead to misunderstanding about the financial position of the public sector. Intangible Fixed Assets (Failed mineral exploration )

  11. Instead of treating knowledge itself as capital, which is clearly impossible because creating knowledge is not economic production, knowledge access should be focused. • We propose that knowledge access status and knowledge access activities should be analysed in satellite accounts. Access to the World 3(Knowledge access)

  12. Knowledge Access Status(Prototype)

  13. Knowledge Access Activities(Prototype)

  14. Intangible non-produced assets are socially created assets. They are totally different from intangible fixed assets. • Confusion between the two may give rise to the loss of confidence in official statistics internationally because people think the SNA is pro-patent as well as serious mis-measurement of economic performances. Intangible Non-produced Assets

  15. There are two rules concerning acquisitions. • <Pooling of Interests Method>The balance sheets of the two businesses are simply combined (using historical cost valuation) and no goodwill is created • <Purchase Method>The acquiring company will put the premium they paid on their balance sheet under the heading "Goodwill.” Goodwill is not a national accounting concept

  16. Business Accounting Treatment of Goodwill Company B Company T Pooling Method Total market value of Company B is 900 Total market value of Company T is 1100 Purchase Method

  17. Goodwill is not a national accounting concept. • Current-value pooling method is the only method that can be used in national accounting. Negativenet worth should be focused instead! Current- Value Pooling Method

  18. As a reference framework, “Popper’s three worlds” may be useful for national accountants. • The distinction between produced assets and non-produced assets should not be obscured in order for the official statistics to be credible with the international society. • Publicness involved in the private sector’s activities is not adequately accounted for in the current national accounts statistics. Closing Remarks

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