Since 1977

THEORY OF ACCOUNTS OCAMPO/CABARLES

ToA.1611 – Intangible Assets MAY 2014

REVIEW QUESTIONS

1. PAS 38 applies to c. If an intangible asset is acquired free of charge or

a. Intangible assets that are not within the scope of by way of government grant, the cost is equal to
another Standard. its fair value.
b. Financial assets, as defined in PAS 32 Financial d. If payment for an intangible asset is deferred
Instruments: Presentation. beyond normal credit terms, its cost is equal to the
c. The recognition and measurement of exploration total payments over the credit period.
and evaluation assets.
d. Expenditure on the development and extraction of 7. The cost of internally generated intangible asset
minerals, oil, natural gas and similar non- includes the following, except
regenerative resources. a. Cost of materials and services used or consumed in
generating the intangible asset
2. Which is not within the definition of an intangible b. Expenditure on training staff to operate the asset
asset? c. Cost to register a legal right
a. Identifiable nonmonetary asset without physical d. Salaries, wages and other employment related
substance costs of personnel directly engaged in generating
b. A resource controlled by an entity as a result of the asset
past event
c. A resource from which future economic benefits 8. Legal fees incurred by a company in defending its
are expected to flow to the entity patent rights should be expensed when the outcome of
d. Held for use in the production or supply of goods the litigation is
or services, for rental to others, or for Successful Unsuccessful
administrative purposes. a. Yes Yes
b. Yes No
3. Which item listed below does not qualify as an c. No No
intangible asset? d. No Yes
a. Computer software
b. Registered patent 9. When an internally generated asset meets the
c. Copyrights that are protected recognition criteria, the appropriate treatment for costs
d. Notebook computer previously expensed is:
a. Reinstatement.
4. Which of the following items qualify as an intangible b. No adjustment as these amounts may not be
asset under PAS 38? reinstated.
a. Advertising and promotion on the launch of a huge c. Include in the cost of the development of the
product asset.
b. College tuition fees paid to employees who decide d. Capitalize into the cost of the asset and adjust
to enroll in an executive M.B.A. program at the opening balance of retained earnings.
Harvard University while working with the
company 10. According to the definition provided in PAS 38
c. Operating losses during the initial stages of the Intangibles, activities undertaken in the ‘research’
project phase of the generation of an asset may include:
d. Legal costs paid to intellectual property lawyers to a. The application of knowledge to a design for the
register a patent production of new materials;
b. The use of research findings to create a
5. The cost of an intangible asset is composed of substantially improved product;
a. Purchase price excluding import duties and c. Using knowledge to materially improve a
nonrefundable taxes manufacturing device.
b. Purchase price including import duties and d. Original and planned investigation with the
nonrefundable taxes prospect of gaining new scientific knowledge;
c. Purchase including both refundable and
nonrefundable taxes 11. Which statement is correct regarding initial recognition
d. Purchase price including trade discounts and of research and development costs?
rebates a. All research costs should be charged to
expense.
6. Which is incorrect concerning the recognition and b. All development costs should be
measurement of an intangible asset? capitalized.
a. If an intangible asset is acquired separately, the c. If an enterprise cannot distinguish the
cost comprises its purchase price, including import research phase of an internal project to create an
duties and taxes and any directly attributable intangible asset from the development phase, the
expenditure of preparing the asset for its intended enterprise treats the expenditure for that project
use. as if it were incurred in the development phase
b. If an intangible asset is acquired in a business only.
combination that is an acquisition, the cost is d. A research and development project
based on its fair value at the date of acquisition. acquired in a business combination is not
recognized as an asset.

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EXCEL PROFESSIONAL SERVICES, INC.
12. According to PAS 38 Intangibles, in order to be able to
capitalize ‘development’ outlays an entity must be able
to demonstrate the following:
I. Technical feasibility and intention of completing the
asset so it will be available for use or sale.
II. Its ability to reliably measure the expenditure on
the development of the asset.
III. Ability to use or sell the asset.
IV. How the asset will generate probable future
economic benefits.
a. I, II and IV only c. II, III and IV only
b. II, and IV only d. I, II, III and IV
13. PAS 38 Intangibles, prohibits the recognition of the
following internally generated identifiable intangibles:
I. Brands
II. Mastheads
III. Publishing titles
IV. Customer lists
a. I, II and IV only c. II, III and IV only
b. II, and IV only d. I, II, III and IV
14. Which of the following would be considered research
and development?
a. Routine efforts to refine an existing product.
b. Periodic alterations to existing production lines.
c. Marketing research to promote a new product.
d. Construction of prototypes.
15. Which of the following costs would be capitalized?
a. Acquisition cost of equipment to be used on
current research project only.
b. Engineering costs incurred to advance the product
to the full production stage.
c. Cost of research to determine whether a market
for the product exists.
d. Salaries of research staff.
16. If a company constructs a laboratory building to be
used as a research and development facility, the cost
of the laboratory building is matched against earnings
as
a. Research and development expense in the
period(s) 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.
17. Operating losses incurred during the start-up years of
a new business should be
a. Accounted for and reported like the operating
losses of any other business.
b. Written off directly against retained earnings.
c. Capitalized as a deferred charge and amortized
over five years.
d. Capitalized as an intangible asset and amortized
over a period not to exceed 20 years.
18. Start-up costs include organizational costs, such as
legal and state fees incurred to organize a new
business entity. These costs should be
a. Capitalized and never amortized.
b. Capitalized and amortized over 40 years.
c. Capitalized and amortized over 5 years.
d. Expensed as incurred.
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19. Which statement is correct concerning the amortization
of an intangible asset?
I. The cost less residual value of an intangible asset
with a finite useful life should be amortized over
that life
II. An intangible asset with an indefinite useful life
should not be amortized.
III. The maximum amortization period cannot exceed
twenty years.
a. I only
b. I and II only
c. I and III only
d. Neither I, II nor III
20. A consideration not relevant in determining the useful
life of the intangible asset is the
a. The period of control over the asset and legal or
similar limits on the use of the asset
b. Technical, technological, commercial or other types
of obsolescence
c. Expected actions of competitors or potential
competitors
d. Initial cost
21. The residual value of an intangible asset
a. Is always equal to zero
b. Is equal to zero unless a third party commits to
buy the asset at the end of its useful life and there
is an active market for the asset
c. Is equal to zero unless a third party commits to
buy the asset at the end of its useful life or there is
an active market for the asset
d. May be increased for the purpose of computing
amortization amount
22. The method of amortization used for an intangible
asset with a finite life
a. Should always be the straight-line method
b. Need not reflect the pattern of use of the asset
c. Should be the straight-line method if the pattern of
use cannot be determined reliably
d. Should always be the units of production method
23. Which of the following factors should not be considered
in determining the useful life of an intangible asset?
a. Effects of obsolescence, changes in market
demand for the product
b. The salvage value of the asset
c. Expected actions of competitors and potential
competitors
d. The period of control over the asset and legal or
similar limits on the use of the asset, such as
expiry dates of related leases or contractual or
regulatory provisions.
24. Goodwill may be recorded when:
a. It is identified within a company.
b. One company acquires another in a business
combination.
c. The fair value of a company’s assets exceeds their
cost.
d. A company has exceptional customer relations.
25. The reason goodwill is sometimes referred to as a
master valuation account is because
a. It represents the purchase price of a business that
is about to be sold.
b. It is the difference between the fair value of the
net identifiable assets as compared with the
purchase price of the acquired business.
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EXCEL PROFESSIONAL SERVICES, INC.
c. The value of a business is computed without
consideration of goodwill and then goodwill is
added to arrive at a master valuation.
d. It is the only account in the financial statements
that is based on value, all other accounts are
recorded at an amount other than their value.
26. Which of the following intangible assets should be
shown as a separate item on the statement of financial
position?
a. Goodwill
b. Franchise
c. Patent
d. Trademark
DO-IT-YOURSELF (DIY) DRILL
1. A newly set up dot-com entity has engaged you as its
financial advisor. The entity has recently completed
one of its highly publicized research and development
projects and seeks your advice on the accuracy of the
following statements made by one of its stakeholders.
Which one is true?
a. Costs incurred during the “research phase” can be
capitalized
b. Costs incurred during the “development phase” can
be capitalized if criteria such as technical feasibility
of the project being established are met
c. Training costs of technicians used in research can
be capitalized
d. Designing of jigs and tools qualify as research
activities
2. When an intangible asset is acquired by an exchange
of assets, which of the following measures will need to
be considered in the determination of that cost? The:
a. Fair value of the asset given up.
b. Carrying amount of the asset received.
c. Initial cost of the asset given up.
d. Replacement cost of the asset received.
3. A brand name that was acquired separately should
initially be recognized, according to PAS38 Intangible
assets, at
a. Recoverable amount
b. Either cost or fair value at the choice of the acquirer
c. Fair value
d. Cost
4. Once recognized, intangible assets can be carried at
a. Cost less accumulated amortization
b. Cost less accumulated amortization and less
accumulated impairment losses
c. Revalued amount less accumulated amortization
d. Cost plus a notional increase in fair value since the
intangible asset is acquired
5. According to PAS38 Intangible assets, amortization of
an intangible asset with a finite useful life should
commence when
a. It is first recognized as an asset
b. it is probable that it will generate future economic
benefits
c. It is available for use
d. The costs can be identified with reasonable certainty
6. In relation to the amortization of intangible assets, if
an intangible asset has a finite useful life:
a. It must be amortized over a period not exceeding
40 years;
b. It must be amortized across a period not
exceeding 5 years;
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27. Which of the following disclosures is not required by
PAS 38?
a. Useful lives of the intangible assets
b. Reconciliation of carrying amount at the beginning
and the end of the year
c. Contractual commitments for the acquisition of
intangible assets
d. Fair value of similar intangible assets used by its
competitors
- now do the DIY drill -
c. It is not subject to an annual amortization charge;
d. It must be amortized over that life.
7. In relation to amortization of intangible assets, PAS 38
Intangibles, requires that intangible assets with
indefinite useful lives:
a. Are amortized by the straight-line method across
their useful lives;
b. Must be amortized across a period of no more than
20 years;
c. Are not subject to an amortization charge;
d. Should not be amortized in a period in which
maintenance of the asset occurs.
8. In relation to the amortisation of intangible assets, the
general rule in PAS 38 Intangibles, is that unless
demonstrated otherwise:
a. The residual value does not enter into the
determination of the amortisation charge.
b. The residual need no be reviewed at the end of
each annual reporting period.
c. All intangible assets have a residual value at least
equal to the amount of maintenance costs
incurred.
d. The residual value is presumed to be zero.
9. Which statement is incorrect concerning internally
generated intangible asset?
a. To assess whether an internally generated
intangible asset meets the criteria for recognition,
an enterprise classifies the generation of the asset
into a research phase and a development phase.
b. The cost of an internally generated asset
comprises all expenditure that can be directly
attributed or allocated on a reasonable and
consistent basis to creating, producing and
preparing the asset for its intended use.
c. Internally generated brands, mastheads,
publishing titles, customer lists and items similar in
substance should not be recognized as intangible
assets.
d. Internally generated goodwill may be recognized
as an intangible asset.
10. Internally generated goodwill is prohibited from
recognition in the financial statements of an entity.
The reason for this treatment is that:
a. Goodwill is not identifiable;
b. Goodwill is not measurable;
c. It is not comparable to any other intangible assets;
d. It is not prudent to recognize intangible assets.
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EXCEL PROFESSIONAL SERVICES, INC.

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