FINANCIAL ACCOUNTING AND REPORTING

FAR11 Intangibles
11.1. Introduction and Key Definitions ........................................................................ 1

11.2. Recognition ................................................................................................................... 1

11.3. Initial Measurement .................................................................................................. 2

11.4. Guidelines on Specific Intangibles ...................................................................... 4

11.4.1. Patent ............................................................................................................... 4
11.4.2. Copyright ........................................................................................................ 4
11.4.3. Franchise ........................................................................................................ 4
11.4.4. Trademark/Trade name/Brand name .............................................. 5
11.4.5. Goodwill .......................................................................................................... 5
11.4.6. Computer Software .................................................................................... 6
11.4.7. Leasehold Improvements........................................................................ 6

11.5. Subsequent Measurement ...................................................................................... 6

11.5.1. Amortization ................................................................................................. 7
11.5.2. Impairment.................................................................................................... 8

11.6. Retirement and Disposal ......................................................................................... 8

11.7. Presentation and Disclosures................................................................................ 8

FAR11 Intangibles
11.1. Introduction, Scope and Definitions
 Intangible assets are identifiable, non-monetary assets without any physical substance. Common
examples of intangible assets are as follows:
a. Patents e. Leasehold or lease rights
b. Trademarks or brand-names f. Computer software
c. Copyrights g. Service rights (such as airline rights,
d. Franchise (books of franchisee) fishing rights, broadcasting license)
 The following shall not be considered as intangible assets and any related expenditure shall not be
capitalized, unless they are purchased:
a. Internally generated goodwill
b. Internally generated brands
c. Mastheads and publishing titles
d. Customer lists
e. Items similar in substance with (a) to (d)
 The following are the key definitions from PAS 38:
Intangible asset An identifiable nonmonetary asset without physical substance.
The systematic allocation of the depreciable amount of an intangible asset
Amortization
over its useful life.
The amount of cash or cash equivalents paid, or the fair value of other
consideration given to acquire an asset at the time of its acquisition or
Cost construction, or, when applicable, the amount attributed to that asset when
initially recognized in accordance with the specific requirements of other
PFRSs.
Money held and assets to be received in fixed or determinable amounts of
Monetary assets
money.
Original and planned investigation undertaken with the prospect of gaining
Research
new scientific or technical knowledge and understanding.
The application of research findings or other knowledge to a plan or design
for the production of new or substantially improved materials, devices,
Development
products, processes, systems or services before the start of commercial
production or use.

11.2. Recognition
 Due to their nature, our primary concern in accounting for intangible assets is their recognition. The
recognition of an item as an intangible asset requires an entity to demonstrate that the item meets:
a. the definition of an intangible asset; and
b. the recognition criteria

Definition
 The definition of an intangible asset requires an intangible asset to be identifiable. An asset is identifiable
if it is either:
a. Separable, it is capable of being separated or divided from the entity and sold, transferred, licensed,
rented or exchanged, either individually or together with a related contract, asset or liability
b. 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.
 This is so in order to distinguish the intangible asset from goodwill. Goodwill recognized in a business
combination is an asset representing the future economic benefits arising from other assets acquired in a
business combination that are not individually identified and separately recognized. The future economic
benefits may result from synergy between the identifiable assets acquired or from assets that, individually,
do not qualify for recognition in the financial statements.

Recognition criteria
 As set forth in PAS 1, an asset shall be recognized if, and only if:
a. It is probable that the expected future economic benefits that are attributable to the asset will flow to
the entity.
b. The cost of the asset can be measured reliably.
 The criteria also presuppose control over the asset. An entity controls an asset if the entity has the power
to obtain the future economic benefits flowing from the underlying resource and to restrict the access of
others to those benefits. The future economic benefits flowing from an intangible asset may include
revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the
asset by the entity.

FAR11 INTANGIBLES 1
11.3. Initial Measurement
 An intangible asset shall be measured initially at cost. An intangible asset may be recognized through any
of the following:

a. Purchase price, including import duties and non-refundable purchase

taxes, after deducting trade discounts and rebates. If payment is deferred,
the cost of the asset is equal to the cash price equivalent.
b. Any directly attributable cost of preparing the asset for its intended use.
Separate Acquisition i. costs of employee benefits arising directly from bringing the asset to
its working condition;
ii. professional fees arising directly from bringing the asset to its
working condition; and
iii. costs of testing whether the asset is functioning properly

a. costs of introducing a new product or service (including costs of

advertising and promotional activities);
b. costs of conducting business in a new location or with a new class of
Not part of the cost customer (including costs of staff training); and
(expensed c. administration and other general overhead costs
immediately) d. costs incurred while an asset capable of operating in the manner intended
by management has yet to be brought into use; and
e. initial operating losses, such as those incurred while demand for the
asset’s output builds up

Fair value at the acquisition date

Acquisition as part of NOTE: An acquirer recognizes at the acquisition date, separately from
business combination goodwill, an intangible asset of the acquiree, irrespective of whether the asset
had been recognized by the acquiree before the business combination.

• An entity may choose to recognize both the intangible asset and the grant
initially at fair value.
Acquisition by way of • If an entity chooses not to recognize the asset initially at fair value, the
government grant entity recognizes the asset initially at a nominal amount (the other
treatment permitted by PAS 20) plus any expenditure that is directly
attributable to preparing the asset for its intended use.

a. Fair value of the asset given up

b. Fair value of the asset received
Exchange of assets c. Carrying amount of the asset given up
NOTE: However, if the transaction lacks commercial substance, then the cost
of the asset acquired is equal to the carrying amount of the asset given up.

• It is sometimes difficult to assess whether an internally generated

intangible asset qualifies for recognition because of problems in:
a. Identifying whether and when there is an identifiable asset that will
generate expected future economic benefits;
b. Determining the cost of the asset reliably. In some cases, the cost of
generating an intangible asset internally cannot be distinguished
from the cost of maintaining or enhancing the entity’s internally
generated goodwill or of running day-to-day operations.

• To assess whether an internally generated intangible asset meets the

Internally generated
criteria for recognition, an entity classifies the generation of the asset
intangible assets
into:
a. a research phase; and
b. a development phase

• If an entity cannot distinguish the research phase from the development

phase of an internal project to create an intangible asset, the entity treats
the expenditure on that project as if it were incurred in the research
phase only.

FAR11 INTANGIBLES 2
 • No intangible asset arising from research (or from the research phase of
an internal project) shall be recognized. Expenditure on research (or on
the research phase of an internal project) shall be recognized as an
expense when it is incurred.
• Examples of research activities are:
a. Activities aimed at obtaining new knowledge
Research phase b. The search for, evaluation and final selection of, applications of
research findings or other knowledge
c. The search for alternatives for materials, devices, products,
processes, systems or services
d. The formulation, design, evaluation and final selection of possible
alternatives for new or improved materials, devices, products,
processes, systems or services.

• An intangible asset arising from development (or from the development

phase of an internal project) shall be recognized if, and only if, an entity
can demonstrate all of the following:
a. Measure reliably the expenditure attributable to the intangible asset
during its development
b. Ability to use or sell the intangible asset
c. Probable future economic benefits. Among other things, the entity
can demonstrate the existence of a market for the output of the
intangible asset or the intangible asset itself or, if it is to be used
internally, the usefulness of the intangible asset
d. Availability of adequate technical, financial and other resources to
complete the development and to use or sell the intangible asset.
Development phase
e. Intention to complete the intangible asset and use or sell it
f. Technical feasibility of completing the intangible asset so that it will
be available for use or sale
• Examples of development activities are:
a. the design, construction and testing of pre-production or pre-use
prototypes and models;
b. the design of tools, jigs, molds and dies involving new technology;
c. the design, construction and operation of a pilot plant that is not of a
scale economically feasible for commercial production; and
d. the design, construction and testing of a chosen alternative for new
or improved materials, devices, products, processes, systems or
services.

Case Study 1
Extracts from the financial records of ABC Inc. for the year ended 2019 are as follows:
Goodwill generated by the company due to an exceptional employee workforce Undeterminable
Advertising expenditure to generate goodwill for the company upon its start-up P30,000
Goodwill acquired in a business combination 200,000
Patent acquired from another business 130,000
Customer lists 40,000
Miscellaneous research expenses 50,000
Development expenses demonstrating 5 out of 6 criteria in PAS 38 par. 57 160,000
Development expenses demonstrating 6 out of 6 criteria in PAS 38 par. 57 270,000
In-process R&D costs acquired in a business combination at fair value 180,000
Intangible asset acquired through a government grant, at fair value 90,000
Equipment acquired for use in various R&D projects 975,000
Depreciation on the above equipment 135,000
Cost of materials used in R&D projects 200,000
Compensation for R&D personnel 500,000
Outside consulting fees 150,000
Indirect costs allocated to the R&D 250,000
Legal costs to file a patent on a certain product; production of which would not have been
undertaken without the patent 100,000
Special equipment to be used solely for the development of the product mentioned above;
the equipment has no other use and has a useful life of 4 years 600,000
Labor and material costs incurred in producing prototypes 2,000,000
Cost of testing the prototype 800,000

Required
Compute for the total amount of intangible assets to be recognized and the amount to be immediately expensed.

FAR11 INTANGIBLES 3
11.4. Guidelines on Specific Intangibles
11.4.1. Patent

An exclusive right granted by the government to an inventor to control the manufacture,

Definition
use or sale of an invention

– If purchased: purchase price and any directly attributable expenditure necessary in

Cost preparing the asset for its intended use
– If developed: licensing and other related legal fees in securing the patent rights

The cost of a patent should be amortized over its legal life (20 years) or useful life,
Amortization
whichever is shorter.

– If a competing patent is acquired to protect an original patent. The cost of the new
patent and the carrying amount of the original patent is amortized over the remaining
life of the original patent.
– If a related patent is acquired to extend the life of an existing patent. The cost of the
new patent and the carrying amount of the original patent is amortized over the
Other considerations extended period, unless if the remaining life of the new patent is shorter than the
extended period.
– Legal fees and other costs of successfully defending or prosecuting a patent
should be charged outright as an expense. Any costs of unsuccessful litigation on patent
should also be charged outright as an expense including the unamortized cost of the
patent.

11.4.2. Copyright

An exclusive right granted by the government to the author, composer or artist enabling to
Definition
publish, sell or otherwise benefit from his literary, musical and artistic work.

Expenses incurred in the production of the work including those required to establish or
Cost
obtain the right

The cost of the copyright should be amortized over the period it is expected to provide a
revenue or legal life, whichever is shorter. However, if revenues are expected to be received
Amortization for an indefinite period of time and renewal and registration can be done with minimal
effort and cost, it should not be amortized but should be reviewed for impairment at each
reporting date.

11.4.3. Franchise

An exclusive right granted by the franchisor (government or private companies) to a

Definition franchisee to use the property or the rights (trademark, patent and processes of the
franchisor).

The cost of the franchise should be amortized or should be reviewed at each reporting
period for impairment.
– If the franchise has a definite period: amortized over the definite period (not exceeding
Amortization
20 years) or useful life, whichever is shorter
– If the franchise has an indefinite life: not amortized but reviewed for impairment at
each reporting date

FAR11 INTANGIBLES 4
 11.4.4. Trademark/Trade name/Brand name

An exclusive right granted by the government that permits the use of distinctive symbols,
Definition
labels, and designs associated with the product or the organization.

– When purchased: the purchase price or the cash price equivalent

Cost – When developed: the expenditures required to establish including filing fees, registry
fees and other expenses incurred in securing the trademark

– The legal life of a trademark or trade name or brand name is 10 years however it may
be renewed for an additional 10-year period for an unlimited number of times (RA No.
8293). Therefore, the legal life of a trademark is indefinite and is not subject to
Amortization
amortization but instead tested for impairment.
– If its life is no longer considered indefinite, it should be amortized over its remaining
useful life.

11.4.5. Goodwill

Definition An unidentifiable intangible asset that allows an enterprise to earn above normal income

– Only a purchased goodwill should be recognized as an asset which is the cost in excess
of the fair value of the net assets acquired in a business combination. This the premium
Recognition
paid in acquiring another business or ordinary shares when control is achieved.
– Goodwill generated internally should be charged outright as an expense.

a. Acquisition cost less fair market value of net assets acquired

b. Purchase of average excess earnings: Average earnings less normal earnings X number
of years
Cost
c. Capitalization of average excess earnings: Average earnings less normal earnings /
capitalization rate
d. Capitalization of average earnings: Average earnings / capitalization rate – net assets

– The cost of goodwill is not amortized because its useful life is indefinite. However,
goodwill shall be tested for impairment at least annually or more frequently if events
or changes in circumstances indicate a possible impairment.
– The amount of goodwill impairment is determined by comparing the recoverable
amount for the cash generating unit (CGU) to which the goodwill belongs against the
Amortization
carrying amount of the CGU.
– If the recoverable amount of the CGU exceeds the carrying amount of the CGU, the CGU
and the goodwill allocated to that unit shall not be impaired.
– If the carrying amount of the CGU exceeds the recoverable amount of the unit, the
company must recognize an impairment loss.

Illustration: Let us assume that a buyer is planning to buy the business of a competitor. The cumulative net earnings
for the past 5 years were P18,000,000. The current value of net assets of the seller was P10,000,000 only. Meaning if
the buyer is able to acquire the assets and assume the liabilities at fair value, the purchase price would only be
P10,000,000. But let us say that buyer will account for the past performance of the seller and determine it as a
contributor to additional income in the future from the purchase of the seller’s business. Goodwill is determined by the
following assuming a 20 percent rate of return and a 25% capitalization rate.
Average earnings (18M / 5) P3,600,000
Less: Normal earnings (10M x 20%) 2,000,000
Excess earnings or earnings from goodwill 1,600,000
Capitalized at 25% or divided by 25%
Goodwill P6,400,000

• The purchase price will then be P16,400,000 which is the price at fair value
plus the goodwill added to the fair value.

Average earnings (18M / 5) P3,600,000

Capitalized at 25% or divided by 25%
Purchase price 14,400,000

FAR11 INTANGIBLES 5
 11.4.6. Computer Software

– Cost incurred on the research stage in creating the software should be charged outright
to expense when incurred until a technological feasibility has been established for the
product.
Internally developed – Technological feasibility is established when a company has produced either a detailed
program design of the software or a working model. After establishing technological
feasibility, the cost of software to be capitalized should include costs of coding and
testing and the cost to produce the product masters.

– If for sale – treat as inventory

– If held for licensing or rental to others – recognize as intangible asset
Purchased
– If used and integral part of the hardware – treat as PPE
– If used and not integral part of the hardware – treat as intangible asset

– The cost of the computer software should be allocated based on the pattern in which
Amortization the asset’s future economic benefits are expected to be consumed by the entity. If such
pattern cannot be determined reliably, the straight-line method is used.

Case Study 2
During 2019, ABC Inc. incurred costs to develop and produce a routine, low-risk computer software product as follows:
Completion of detailed program design or working model P1,300,000
Cost incurred for coding and testing to establish technological feasibility 1,000,000
Other coding costs after establishment of technological feasibility 2,400,000
Other testing costs after establishment of technological feasibility 2,000,000
Costs of producing product masters for training materials 1,500,000
Duplication of computer software and training materials from product master 2,500,000
Packaging product 900,000

Required
Compute for the amount to be capitalized as intangible assets.

11.4.7. Leasehold Improvements

Permanent upgrading on leased property under an operating lease. These are alterations
or modifications on the leased property made by the lessee, such as buildings, walkways,
Definition
pavements, landscaping, driveways, lighting installations, major repairs or replacements,
partitions, cabinets, shelves, ventilating system, etc. made on the leased asset.

Recognition These are generally classified as property, plant and equipment.

– If the lease is nonrenewable, depreciated using the shorter period between the
remaining lease term and the useful life of the LHI.
– If the lease contract contains a provision for an option to renew and the likelihood of
the renewal option is highly probable, the cost of the LHI should be depreciated over
Depreciation
the shorter of the life of the LHI and the remaining extended lease term.
– But when the renewal option is uncertain, the cost of the LHI should be depreciated
over the shorter between the life of the LHI and the remaining lease term, as if there
was no renewal option.

11.5. Subsequent Measurement

 Similar to items of PPE, an entity shall choose either the cost model or the revaluation model in as its
accounting policy in subsequently valuing intangible assets. If an intangible asset is accounted for using the
revaluation model, all the other assets in its class shall also be accounted for using the same model, unless
there is no active market for those assets.

Cost model
 When the cost model is elected, an intangible asset shall be subsequently valued at its cost less any
accumulated amortization and any accumulated impairment losses. Note that intangible assets with
no active market are subsequently valued using the cost model.

FAR11 INTANGIBLES 6
 Revaluation model
 After initial recognition, an intangible asset shall be carried at a revalued amount, being its fair value at
the date of the revaluation less any subsequent accumulated amortization and any subsequent
accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be
measured by reference to an active market. Revaluations shall be made with such regularity that at the end
of the reporting period the carrying amount of the asset does not differ materially from its fair value.

11.4.1. Amortization
 The amortization of intangibles follows the same concept with that of depreciating items of PPE. However, an entity
shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number
of production or similar units constituting, that useful life.
– Indefinite life: No foreseeable limit to the period over which the asset is expected to generate net cash
inflows for the entity.
– Finite life: A limited period of benefit to the entity.
 The following should be noted:
– An intangible asset shall be regarded by the entity as having an indefinite useful life when, based on an
analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is
expected to generate net cash inflows for the entity.
– The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the
period of the contractual or other legal rights but may be shorter depending on the period over which the
entity expects to use the asset. The length of time used to amortize intangibles is the asset’s legal life or
useful life, whichever is lower.
Type of intangible Assumed legal life
Patent 20 years
Trademark 10 years
Copyright 50 years
Franchise 20 years
Goodwill (from business combination) Indefinite
– If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life
of the intangible asset shall include the renewal period(s) only if there is evidence to support renewal by
the entity without significant cost. However, the useful life of a reacquired right recognized as an intangible
asset in a business combination is the remaining contractual period of the contract in which the right was
granted and shall not include renewal periods.

Intangible assets with finite lives

 The cost less residual value of an intangible asset with a finite useful life should be amortized over its useful life or
legal life, whichever is shorter:
a. The amortization method should reflect the pattern of benefits.
b. If the pattern cannot be determined reliably, amortize by the straight-line method.
c. The amortization charge is recognized in profit or loss unless another PFRS requires that it be included in the
cost of another asset.
d. The amortization period and method should be reviewed at least annually.
e. If the expected useful life of the asset is different from previous estimates, the amortization period shall be
changed accordingly. If there has been a change in the expected pattern of consumption of the future economic
benefits embodied in the asset, the amortization method shall be changed to reflect the changed pattern. Such
changes shall be accounted for as changes in accounting estimates in accordance with PAS 8.
f. The asset should also be assessed for impairment in accordance with PAS 36.
g. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless:
– there is a commitment by a third party to purchase the asset at the end of its useful life; or
– there is an active market (as defined in PFRS 13) for the asset and:
• residual value can be determined by reference to that market; and
• it is probable that such a market will exist at the end of the asset's useful life.

Intangible assets with indefinite lives

 An intangible asset with an indefinite useful life should not be amortized.
 Its useful life should be reviewed each reporting period to determine whether events and circumstances continue
to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment
from indefinite to finite should be accounted for as a change in an accounting estimate.
 The asset should also be assessed for impairment in accordance with PAS 36.

FAR11 INTANGIBLES 7
 Case Study 3
ABC Inc. has the following details for two of its intangible assets:
• On January 1, 2019, ABC Inc. purchased a patent from an original patentee for P2,400,000. The remaining legal life
of the patent is 15 years but the useful life is only 12 years. On January 1, 2020, the entity paid P550,000 in
successfully defending the patent in an infringement suit filed against the entity. On January 1, 2021, the entity
acquired a competing patent for P1,500,000. The competing patent has a remaining legal life of 15 years, but it is
not to be used because it was intended to protect the original patent.

• On January 1, 2019, ABC Inc. purchased a trademark for P7,140,000. The trademark is being amortized over its
remaining legal life of 15 years. During 2022, the entity determined that the economic benefits of the trademark
would not last longer than ten years from the date of acquisition.

Required
Compute for the carrying amount (i.e. cost net of accumulated amortization) of the intangibles on December 31, 2022.

11.4.2. Impairment
 The provisions in recognizing impairment loss and reversals of impairment as set forth IAS 36 shall also apply to
intangibles. As discussed in the module of PPE, there is impairment when the carrying amount of the asset exceeds
its recoverable amount (i.e. the higher between the fair value less cost to sell and the asset’s value in use).

 The recoverable amount of an intangible asset with an indefinite useful life is usually equal to its value in use, since
such assets have no known market. Because the term is indefinite, the value in use is computed using the formula
in computing a perpetuity:
Value in use = Expected annual cash flows ÷ Discount rate

Case Study 4
On January 1, 2019, ABC Inc. acquired the following intangible assets:
• A trademark for P3,000,000. The trademark has 8 years remaining in its legal life. It is anticipated that the
trademark will be renewed in the future, indefinitely, without problem.
• A patent for P6,000,000. Because of market conditions, it is expected that the patent will have economic life for
just 5 years, although the remaining legal life is 10 years.

On December 31, 2019, the intangible assets are assessed for impairment. Because of a decline in the economy, the
trademark is expected to generate cash flows of just P120,000 per year. The useful life of the trademark still extends
beyond the foreseeable horizon. The cash flows expected to be generated by the patent are P1,000,000 annually for
each of the next 4 years. The appropriate discount rate for all intangible assets is 6%. The present value of an ordinary
annuity of 1 at 6% for four periods is 3.46. The fair value less cost to sell of the patent is P3,200,000.

Required
Compute for the total amount of impairment loss for the year then ended.

11.6. Retirement and Disposal

 An intangible asset shall be derecognized:
a. On disposal; or
b. When no future economic benefits are expected from its use or disposal.
 The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference
between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognized in
profit or loss when the asset is derecognized (unless PAS 17 requires otherwise on a sale and leaseback.)
Gains shall not be classified as revenue.

11.7. Presentation and Disclosures

 All items of intangible assets should be shown in the statement of financial position within the line item
“Intangibles” under noncurrent assets.
 Goodwill should be separately shown in the statement of financial position.
 The Standard requires these disclosures for each class of intangible asset, distinguishing between
internally generated and other assets:
a. Whether useful lives are indefinite or finite and, if finite, the useful lives or amortization rates used •
The amortization methods used
b. The gross carrying amount and accumulated amortization and impairment losses at the beginning and
end of the period
c. The line items in the statement of comprehensive income in which amortization is included
d. Additions, separately showing those internally generated, those acquired separately, and those
acquired through business combinations
e. Assets classified as held for sale under PFRS 5
f. Increases or decreases during the period resulting from revaluations
g. Impairment losses

FAR11 INTANGIBLES 8
 h. Reversals of impairment losses
i. Amortization recognized during the period
j. Net exchange differences on retranslation
k. Other changes during the period
l. For assets with indefinite useful lives, the carrying amount of the asset and the reasons supporting
such an assessment
m. Description, carrying amount, and remaining amortization period of any intangible assets that are
material to the entity’s financial statements
n. The existence and carrying amounts of intangible assets whose title is restricted or pledged as security
for liabilities
o. Contractual commitments for the acquisition of intangible assets
p. Intangible assets acquired by way of government grant and initially recognized at fair value, including
their fair values, their carrying amounts, and whether subsequently carried under the cost or
revaluation model
q. The amount of research and development expenditure expensed during the period
 If intangible assets are stated at revalued amounts, then these points are to be disclosed:
a. For each class of asset
– The effective date of revaluation
– The carrying amount
– The carrying amount that would have been recognized had the cost model been used
– The revaluation surplus that relates to intangible assets at the beginning and end of the period,
indicating changes during the period and any restrictions on distributions to shareholders
b. The methods and significant assumptions used in estimating fair values
 In addition to the preceding disclosures, entities are encouraged to disclose the description of any fully
amortized intangible assets that are still in use and of any significant intangible assets controlled by the
entity not recognized as assets as they failed to meet the recognition criteria.

Quizzer – Problem 1
1. On January 1, 2019, Anton Company acquired an intangible asset from a foreign company. The invoice price of the
intangible was P10,000,000 subject to a 10% discount if acquired on a cash basis. Anton Company paid P2,000,000
import duties and professional fees of P100,000 in relation to its acquisition. At what amount should the intangible
asset be initially recorded in the books of the Anton Company?
A. P9,000,000
B. P9,100,000
C. P11,000,000
D. P11,100,000

2. Baby Company acquired an intangible asset from Candy Company on May 1, 2019 by issuing 5,000,000 of its
ordinary shares with a par value of P2.00 per share but currently selling in the stock exchange for P3.00 per share
and an additional amount of P2,000,000. Baby Company also pays P100,000 legal cost in relation to the acquisition
of the intangible asset. At what amount should the intangible asset be initially recorded by Baby Company?
A. P10,100,000
B. P15,100,000
C. P17,000,000
D. P17,100,000

3. Divine Company exchanges the rights to distribute a product in Zamboanga which have a carrying amount of
P2,000,000 for cash of P500,000 and the rights to distribute the same product in Ipil. The fair market value of the
rights received is P1,700,000. The exchange is considered having the necessary commercial substance. At the time
of exchange, the intangible asset should be initially recorded by Divine Company at
A. P1,500,000
B. P1,700,000
C. P2,000,000
D. P2,200,000

4. Emman Company purchases a trademark from an overseas company to manufacture items under the trademark.
Emman Company incurs the following costs in purchasing the trademark:
Amount paid for the trademark P8,000,000
Import duties 80,000
Legal fees (negotiating the deal and enduring the terms of the trademark are fair) 100,000
Training costs (required by overseas company before the trademark can be used) 20,000
Advertising new product 30,000
Cost of registering the trademark (required in terms of the agreement with supplier) 90,000

What amount should the trademark be initially recorded?

A. P8,180,000
B. P8,270,000
C. P8,290,000
D. P8,320,000

FAR11 INTANGIBLES 9
5. On July 1, 2019, Faith Company signed an agreement to operate as a franchise of McDoDo for an initial franchise fee
of P1,200,000. On the same date, Faith paid P400,000 and agreed to pay the balance in four equal payments of
P200,000 beginning July 1, 2020. The down payment is not refundable, and no future services are required of the
franchisor. Faith can borrow at 14% for a loan of this type. What is the carrying value of the franchise to be reported
on the December 31, 2021 statement of financial position assuming the franchise has a definite life of 20 years?
A. P859,950
B. P982,800
C. P1,110,000
D. P1,352,000

6. Gandhi Company purchased a patent on January 1, 2019 for P428,400. The patent was being amortized over its
remaining legal life of 15 years expiring on January 1, 2034. On January 1, 2022, Gandhi determined that the
economic benefits of the patent would not last longer than 10 years from the date of acquisition. What amount
should be reported in the balance sheet as patent, net of accumulated amortization at December 31, 2025?
A. P146,880
B. P195,840
C. P244,800
D. P302,400

7. On January 2, 2019, Hanna Company paid P500,000 to acquire a patent with a remaining economic useful life of 15
years. Hanna Company expects to use the patent for 5 years and intends to sell it after 5 years. Inno Company has
committed to buy the patent for 40% of the cost to Hanna Company. In its December 31, 2019, what amount of
patent amortization should Hanna Company report in its profit or loss?
A. P40,000
B. P60,000
C. P100,000
D. P200,000

8. Javier Company has a broadcasting license that expires in 5 years. As of January 1, 2019, the license has a carrying
amount of P1,800,000. The license is renewable and has already been renewed twice in the past. During the current
year 2019, the broadcasting authority has decided that in the future it will auction the licenses when they came up
for renewal. As a result of this development, the company’s renewal option is no longer assured. The license has a
remaining life of three years as of January 1, 2019. In the December 31, 2019 statement of financial position, how
much should be reported as the carrying value of the broadcasting license?
A. None
B. P1,200,000
C. P1,600,000
D. P2,000,000

9. Kiki Company incurred P298,350 of research and development cost to develop a product for which a patent was
granted on January 2, 2019. Legal fees and other costs associated with registration of the patent totaled P109,200.
On January 2, 2025, Kiki Company paid P90,000 for legal fees for the litigation put up against the patent. The patent
has a useful life of 20 years. The final verdict was known on July 1, 2025 in favor of Kiki Company. What total amount
of expense Kiki Company should report in its 2025 profit or loss related to the patent?
A. P5,460
B. P90,000
C. P95,460
D. P166,440

10. The R&D division of Lola Company undertakes both research and development activities of the company. Its current
development project on a prototype is near completion. The cost identified in this project consists of the following:
Cost of materials used P5,000,000
Salaries of consultants for the projects 2,000,000
Fees to register trade design 50,000
Amortization of patent used in the project 100,000
Selling and administrative overheads allocated 1,000,000
Initial operating losses 500,000
Training costs to operate the asset 100,000
Total P8,750,000

The other costs that relate to this project are the salaries of scientists and technicians (P1,200,000) and
depreciation of equipment used in the research and development activities (P900,000). Management estimates that
about one third of these costs relate to the development project. What amount of development costs that should be
capitalized?
A. P7,150,000
B. P7,850,000
C. P8,250,000
D. P8,750,000

FAR11 INTANGIBLES 10
11. Mark Company has two projects under development, and the amounts capitalized as assets as at the end of the prior
financial year are as follows:
Project A Project B
Deferred development costs P10,000,000 P15,000,000

For the current financial year ended December 31, 2019, development costs of P3,000,000 and P4,000,000 were
incurred for Project A and Project B, respectively. At the end of the current financial year, the directors assessed
and concluded that the market for the products under Project A is unlikely to exist and therefore not feasible to
continue with its development. For Project B, the criteria for capitalization continue to be met. Estimates made for
this project are as follows:
Revenue from sale of products P38,000,000
Further development costs to complete projects 6,000,000
Related production costs of products 12,000,000
Directly attributable selling and administrative costs 4,000,000

What total amount of impairment loss on Project B should the company recognize?
A. None
B. P3,000,000
C. P4,000,000
D. P7,000,000

12. Nikko Company incurred P1,500,000 (P400,000 in 2019 and P1,100,000 in 2020) to develop a computer software
product. P500,000 of this amount was expended before technological feasibility was established in early 2020. The
product will earn future revenues of P4,000,000 over its 5-year life, as follows: 2020 – P1,000,000; 2021 –
P1,000,000; 2022 – P800,000; 2023 – P800,000; and 2024 – P400,000. What portion of the P1,500,000 computer
software costs should be expensed in 2020?
A. P250,000
B. P300,000
C. P350,000
D. P1,100,000

13. Octopus Company has recognized two intangible assets at their revalued amount. As of December 31, 2019, their
carrying amounts are as follows:
Asset A Asset B
At valuation P20,000,000 P15,000,000
Remaining revaluation surplus 6,000,000 none
Revaluation decrease recognized as an expense none 5,000,000

As of January 1, 2020, the assets were revalued be reference to their current market prices. The market values of
Asset A and Asset B on this date were P12,000,000 and P24,000,000. As at this date both assets have a remaining
useful life of ten years. The assets are being amortized on the straight-line method.

Question 1: What amount of gain or loss that Octopus Company recognize in relation to Asset A on January 1, 2020?
A. None
B. P2,000,000
C. P3,000,000
D. P5,000,000

Question 2: What amount of gain or loss that Octopus Company recognize in relation to Asset B on January 1, 2020?
A. None
B. P2,000,000
C. P3,000,000
D. P5,000,000

14. Popoy Company markets products to real estate agents and to new homeowners, purchased a customer list for
P600,000 on January 2, 2019. Because of turnover among real estate agents and because new homeowners
gradually become established homeowners, the list is expected to have economic value for only four years. The
company uses the straight-line method of amortization. On January 2020, the customer list was tested for
impairment as a result of substantial turndown in the retail estate market in the area. It is estimated that the
customer list will generate future cash flows of P140,000, P120,000 and P80,000 in 2020, 2021 and 2022,
respectively and that the fair value (less costs to sell) of the customer list is P240,000. The market rate of interest
on this date is 8%. What amount of impairment loss on customer lists should Popoy Company recognize?
A. None
B. P153,983
C. P192,300
D. P450,000

FAR11 INTANGIBLES 11
15. An intangible asset costs P300,000 on January 1, 2019. On January 1, 2020, the asset was evaluated to determine if
it was impaired. As of January 1, 2020, the asset was expected to generate future cash flows of P25,000 per year (at
the end of each year). The appropriate discount rate is 5%. What total amount should be charged against income in
2020, assuming that the asset had a total useful life of 10 years from date of acquisition?
A. P30,000
B. P92,304
C. P112,048
D. P122,304

16. Quail Company bought Special Products Division in 2019 and appropriately recorded P500,000 of goodwill related
to the purchase. On December 31, 2023, the fair value of Special Products Division is P4,000,000 and it is carried
on Quail’s books for a total of P3,400,000, including the goodwill. An analysis of Special Products Division’s assets
indicates that goodwill of P400,000 exists on December 31, 2023. What goodwill impairment should be recognized
by Quail in 2023?
A. None
B. P50,000
C. P200,000
D. P300,000

17. Reese Company acquired Sasha Company on January 1, 2019. The acquisition cost exceeds the fair value of the net
assets of Sasha Company by P200,000. The excess was attributed unidentifiable intangible asset that was assigned
to Sasha’s separate reporting unit. During the current year 2019, the separate reporting unit reported revenues of
P800,000. Publicly traded companies with operations similar to those of the separate reporting unit of Sasha had
price to revenue ratios averaging 1.70. The fair values and book values of the assets and liabilities of the unit are as
follows:
Book values Fair values
Identifiable assets P1,950,000 P1,900,000
Goodwill 500,000 ?
Liabilities 650,000 650,000

What is the amount of goodwill impairment should Sasha recognize based on the above information?
A. None
B. P380,000
C. P390,000
D. P500,000

18. On January 1, 2019, Trent Company signed a 8-year lease for warehouse space. The lease contract contains a
renewal option for an additional 8-year period on January 1, 2022. On January 2, 2021, Trent completed substantial
improvements to the warehouse. The cost of these improvements was P420,000 with an estimated useful life of 15
years.

Question 1: If the likelihood of renewal is highly probable, what is the carrying amount of the improvement on
December 31, 2023 statement of financial position?
A. P330,000
B. P336,000
C. P360,000
D. P364,000

Question 2: If the likelihood of renewal is uncertain, what is the carrying amount of the improvement on December
31, 2023 statement of financial position?
A. P210,000
B. P330,000
C. P360,000
D. P364,000

Quizzer – Theory 1
1. An intangible asset is defined as
A. An identifiable asset without physical substance.
B. A nonmonetary asset without physical substance.
C. An identifiable nonmonetary asset without physical substance
D. An identifiable monetary and nonmonetary asset without physical substance.

2. Which of the following would qualify as an intangible asset?

A. Advertising and promotion on the launch of a huge product.
B. College tuition fees paid to employees who decide to enroll in an executive MBA program while working with
the entity.
C. Operating losses during the initial stages of a project.
D. Legal costs paid to intellectual property lawyers to register a patent.

FAR11 INTANGIBLES 12
3. Which of the following does not qualify as an intangible asset?
A. Computer software C. Copyright that is protected
B. Registered patent D. Notebook computer

4. An intangible asset is identifiable when

I. It is separable, meaning, the asset is capable of being separated from the entity and sold transferred, licensed,
rented or exchanged regardless of whether the entity intends to do so.
II. It 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.
A. I only C. Either I or II
B. II only D. Neither I nor II

5. Which statement in incorrect concerning "control" in the definition of an intangible asset?

A. An entity controls an asset if the entity has the power to obtain future economic benefits flowing from the
underlying resource and to restrict the access of others to those benefits.
B. The capacity of an entity to control the future economic benefits from an intangible asset would normally stem
from legal rights that are enforceable in a court of law.
C. Market and technical knowledge may give rise to future economic benefits which can be controlled by the entity
if the knowledge is protected by legal right, such as a copyright.
D. The skill of employees arising out of the benefits of training costs can be recognized as an intangible asset.

6. The recognition criteria for an intangible asset include which of the following conditions?
I. It must be measured at cost.
II. Its cost can be measured reliably.
III. It is probable that future economic benefits will arise from its use.
A. I, II and III C. I and III only
B. I and II only D. II and III only

7. An intangible asset that was acquired separately shall initially be recognized at

A. Recoverable amount C. Fair value
B. Either cost or fair value D. Cost

8. After initial recognition, an intangible asset shall be carried using the

A. Cost model only C. Either cost model or revaluation model
B. Revaluation model only D. Neither cost model nor revaluation

9. Once recognized, intangible assets can be carried at

A. Cost less accumulated amortization
B. Cost less accumulated amortization and impairment losses
C. Revalued amount less accumulated amortization
D. Cost plus a notional increase in fair value since the intangible asset is required

10. The cost of a separately acquired intangible asset comprises its purchase price, including import duties and
nonrefundable purchase taxes, and
A. Costs of introducing a new product or service
B. Cost of conducting a business in a new location
C. Administration and other general overhead costs
D. Directly attributable costs of preparing the asset for its intended use.

11. Directly attributable costs of preparing the intangible asset for its intended use include all of the following, except
A. Cost of employee benefits arising directly from bringing the asset to its working condition
B. Professional fees arising directly from bringing the asset to its working condition
C. Cost of testing whether the asset is functioning properly
D. Initial operating losses

12. Which is incorrect concerning acquisition of an intangible asset as part of a business combination?
A. The cost of the intangible asset is based on its fair value at the date of acquisition.
B. If there is an active market from the intangible asset, the fair value is equal to the quoted market price which is
usually the current bid price.
C. If there is no active market for the intangible asset, the fair value is equal to the amount that would be paid by
the entity in an arm's length transaction between knowledgeable and willing parties.
D. If an intangible asset acquired in a business combination is separable or arises from contractual or legal rights,
sufficient information does not exist to measure reliably the fair value of the asset.

13. Which of the following statements in relation to intangible assets acquired in a business combination is true?
I. Intangible assets acquired in business combination shall only be recognized if they have already been
recognized by the entity being acquired.
II. Intangible assets acquired in a business combination shall not be recognized separately from goodwill.
A. I only C. Both I and II
B. II only D. Neither I nor II

FAR11 INTANGIBLES 2
14. An intangible asset acquired by way of government grant may be initially recorded at
I. Fair value
II. Nominal amount or zero, plus any expenditure that is directly attributable to preparing the asset for its
intended use.
A. I only C. Either I or II
B. II only D. Neither I nor II

15. Goodwill shall be recognized only when

A. It is purchased from another entity.
B. It can be established that a definite benefit or advantage has resulted to an entity from some item such as a
good name, capable staff, or reputation
C. It is acquired through the purchase of another business entity.
D. An entity reports above normal earnings for five or more consecutive years.

16. Goodwill shall be tested for impairment

A. If there is an indication of impairment C. Every 5 years
B. Annually D. On the acquisition of a subsidiary

17. An impairment loss recognized for goodwill

A. Shall not be reversed in a subsequent year. C. May be reversed partly in a subsequent year.
B. May be reversed fully in a subsequent year. D. Shall be reversed in a subsequent year.

18. A trademark is an example of which general category of intangible asset that should be recognized separately?
A. Marketing-related C. Artistic-related
B. Customer-related D. Contract-based

19. A copyright is an example of which general category of intangible asset?

A. Marketing-related C. Artistic-related
B. Customer-related D. Contract-based

20. Broadcast rights and franchises are an example of which general category of intangible asset that should be
recognized separately?
A. Marketing-related C. Artistic-related
B. Customer-related D. Contract-based

21. Order backlogs and customer lists are an example of which general category of intangible asset that should be
recognized separately?
A. Marketing-related C. Artistic-related
B. Customer-related D. Contract-based

22. Trade secrets and patents are an example of which general category of intangible asset that should be recognized
separately?
A. Marketing-related C. Artistic-related
B. Customer-related D. Technology-based

23. Which of the following should be expensed as incurred by the franchisee?

A. Amount paid to the franchisor for the franchise
B. Payment to an entity, other than the franchisor, for that entity's franchise.
C. Legal fees paid to the franchisee's lawyers to obtain the franchise.
D. Periodic payments to the franchisor based on the franchisee's revenue.

24. A lessee incurred cost to construct walkway and landscaping to improve leased property. The useful life of the
walkway and landscaping is 15 years and the remaining term of the nonrenewable lease is 20 years. The walkway
and landscaping cost should be
A. Capitalized as leasehold improvement and depreciated over 20 years.
B. Capitalized as leasehold improvement and depreciated over 15 years.
C. Capitalized as leasehold improvement and expensed in the year in which the lease expires.
D. Expensed as incurred.

25. An airline entity purchased airline gate rights at an international airport with a legal life of 5 years. However, the
entity has the ability and right to extend the rights every 10 years for an indefinite period of time. Over what period
of time should the entity amortize the airline gate rights?
A. 40 years C. 5 years
B. 15 years D. The rights should not be amortized.

26. Amortization of an intangible asset with a finite useful life shall commence with
A. It is first recognized as an asset.
B. It is probable that it will generate future economic benefits.
C. It is available for the intended use.
D. The cost can be measured with reasonable certainty.

FAR11 INTANGIBLES 2
27. The appropriate method of amortizing intangible asset is best described by which of the following?
A. The straight-line method, unless the pattern in which the asset's economic benefits are consumed by the entity
can be determined reliably.
B. The double declining balance in all circumstances.
C. Management can make a subjective amount of periodic amortization without regard to any particular method.
D. The straight-line method in all circumstances.

28. Which statement is correct concerning amortization of intangible assets?

I. The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis
over its useful life.
II. An intangible asset with an indefinite useful life shall not be amortized but tested for impairment annually and
when there is an indication that the intangible asset may be impaired.
A. I only C. Both I and II
B. II only D. Neither I nor II

29. Which of the following statements is true in relation to intangible assets?

I. Intangible assets cannot be treated as having an indefinite useful life.
II. Intangible assets with a finite useful life should be measured at cost and tested annually for impairment.
A. I only C. Both I and II
B. II only D. Neither I nor II

30. Which of the following represents the maximum amortization period intangible assets?
A. 10 years C. 40 years
B. 20 years D. No arbitrary cap on the useful life

31. The residual value of an intangible asset with a finite life shall be assumed zero, unless
I. There is a commitment by a third party to purchase the asset at the end of its useful life.
II. There is an active market for the asset and residual value can be determined by reference to that market
and it is probable that such market will exist at the end of the asset's useful life.
A. Both I and II C. II only
B. Neither I nor II D. I only

32. Which of the following factors should not be considered in estimating the useful life of intangible asset?
A. Legal, regulatory or contractual provision
B. Expected action by competitors or potential competitors
C. Residual value
D. Expected usage of the asset

33. It is the systematic allocation of the cost of an intangible asset less any residual value as an expense over the asset's
useful life.
A. Depreciation C. Depletion
B. Realization D. Amortization

34. Which statement is true concerning useful life of an intangible asset?

I. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period
over which the asset is expected to generate net cash inflows for the entity,
II. The useful life of an intangible asset arising from contractual or other legal rights shall not exceed the period
of those rights but may be shorter depending on the period over which the asset is expected to be used by the
entity.
III. If the rights are conveyed for a limited term that can be renewed, the useful life shall include the renewal period
only if there is evidence to support renewal by the entity without significant cost.
A. I and II only C. II and III only
B. I and III only D. I, II and III

35. Which is not a component of the cost of internally generated intangible asset?
A. Cost of materials and services used or consumed in generating the intangible asset.
B. Cost of employee benefits arising from the generation of the intangible asset.
C. Fees to register a legal right.
D. Expenditure on training staff to operate the asset.

36. Which statement is incorrect concerning internally generated intangible asset?

A. To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies
the generation of the asset into a research phase and a development phase.
B. The cost of an internally generated asset comprises all directly attributable costs necessary to create, produce
and prepare the asset for its intended use.
C. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall
be recognized as intangible assets.
D. Internally generated goodwill shall not be recognized as an intangible asset.

FAR11 INTANGIBLES 2
37. Which statement is incorrect concerning research and development?
A. Research is original and planned investigation undertaken with the purpose of gaining new scientific and
technical knowledge and understanding.
B. Development is application of research finding or other knowledge to a plan or design for the production of
new or substantially improved material, device, product, process, system or service, prior to the
commencement of commercial production or use.
C. Expenditure on research shall be recognized as an expense when it is incurred.
D. If an entity cannot distinguish the research phase from the development phase of an internal project to create
an intangible asset, the entity shall treat the expenditure on that project as if it were incurred in the
development phase only.

38. Research activities include all of the following, except

A. Search for application of research finding or other knowledge.
B. Search for product or process alternative
C. Formulation and design of the possible product or process alternative
D. Design, construction and testing of preproduction prototype and model.

39. Development activities include all of the following, except

A. Design of tools, jigs, molds and dies involving new technology
B. Design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial
production
C. Design, construction and testing of a chosen alternative for a new or improved product or process.
D. Laboratory activities aimed at obtaining new knowledge

40. Which of the following statements in relation to the term "development" is true?
I. The product being developed should have already been put into commercial production or use.
II. Development involves the application of research findings.
A. I only C. Both I and II
B. II only D. Neither I nor I

41. Which statement is true in relation to research and development expenditure?

I. Expenditure during the "research phase" of a project may sometimes be capitalized as an intangible asset.
II. Expenditure during the "development phase" of a project may sometimes be capitalized as an intangible asset.
A. I only C. Both I and II
B. II only D. Neither I nor II

42. Which of the following research and development related costs should be capitalized and amortized over current
and future periods?
A. Labor and material costs incurred in building a prototype model.
B. Cost of testing equipment that will also be used in another separate research and development project
scheduled to begin next year.
C. Administrative salaries allocated to research and development,
D. Research findings purchased from another company to aid a particular research project currently in process.

43. Which of the following principles best describes the current method of research and development costs?
A. Associating cause and effect C. Income tax minimization
B. Systematic and rational allocation D. Immediate recognition as an expense

44. If an entity constructs a laboratory building to be used as a research and development facility, the cost of the
building is matched against earnings as
A. Research and development expense in the period of construction.
B. Depreciation deducted as part of research and development costs.
C. Depreciation or immediate write-off depending on company policy.
D. An expense at such time as productive research and development has been obtained from the facility.

45. A research and development activity for which the cost should be expensed is
A. Engineering follow-through in early phase of commercial production.
B. Design, construction, and testing of preproduction prototypes and models.
C. Trouble shooting in connection with breakdowns during commercial production.
D. Periodic design changes to existing products.

46. At the beginning of the current year, an entity had capitalized cost for a new computer software product with an
economic life of five years. Sales for the current year were 30 percent of expected total sales of the software.
However, the pattern of future sales cannot be measured reliably. At year-end, the software had a net realizable
value equal to 90 percent of the capitalized cost. What percentage of the original capitalized cost should be reported
as the net amount at year-end?
A. 70% C. 80%
B. 72% D. 90%

FAR11 INTANGIBLES 2
47. The accounting for the costs incurred in creating computer software products is to
A. Capitalize all costs until the software is sold.
B. Charge research and development expense when incurred until technological feasibility has been established
for the product.
C. Charge research and development expense only if the computer software has alternative future use.
D. Capitalize all costs as incurred until a detailed program design or working model is created.

48. A computer software purchased as an integral part of a computer-controlled machine that cannot operate without
that specific software shall be treated as
A. Intangible asset C. Expense in the year incurred
B. Property, plant and equipment D. Research and development cost

49. Which of the following statements is true in relation to internal-use software?

I. Preliminary costs should be capitalized as incurred.
II. Application and development costs should be capitalized as incurred. /
A. I only C. Both I and II
B. II only D. Neither I nor II

50. Which of the following statements is incorrect in relation to internal-use software?

A. The application and development costs should be amortized on the straight-line basis unless another
systematic and rational basis is more appropriate.
B. Internal-use software is considered to be software that is marketed as a separate product.
C. The costs of testing and installing computer hardware should be capitalized as incurred.
D. The costs of training and application maintenance should be expensed as incurred.

51. Start-up costs are recognized as expense when incurred and these costs include
I. Preopening costs or those establishment costs such as legal and secretarial costs incurred in establishing a legal
entity, and costs of opening a new facility or business.
II. Pre-operating costs or those costs incurred for starting new operations or launching new products.
A. I only C. Both I and II
B. II only D. Neither I nor II

52. Under SIC 32, "web site development costs" incurred for the purpose of promoting and advertising an entity's
product or service should be
A. Expensed as incurred
B. Capitalized as an intangible asset
C. Either expensed as incurred or capitalized as an intangible asset depending on the recognition criteria.
D. Charged to retained earnings

53. It is an arrangement whereby a public sector entity grants a private concession operator to provide services that
give the public access to major infrastructure, such as expressway and telecommunication network.
A. Service concession C. Government grant
B. Loan D. Government assistance

54. The private concession operator shall recognize the infrastructure asset as
A. Intangible asset
B. Financial asset
C. Either intangible asset or financial asset
D. Neither an intangible asset nor a financial asset.

55. The infrastructure asset shall be recognized by the concession operator as an intangible asset when
I. The operator has received a right, not a license, to charge users for the public service.
II. The right to charge users for the public service is not an unconditional right because the revenue receivable is
not agreed upon in advance but is dependent on the use of the asset.
A. I only C. Both I and II
B. II only D. Neither I nor II

56. The infrastructure asset shall be recognized by the concession operator as a when
I. The operator has an unconditional contractual right to receive cash over arrangement.
II. The grantor has contractually guaranteed to pay the concession operator the specified or determinable amount.
A. I only C. Both I and II
B. II only D. Neither I nor II

FAR11 INTANGIBLES 2