Chapter 11

Intangible Assets

QUIZ

1. According to the GAM for NGAs, to qualify as intangible asset, an item must possess all of the
following elements except
a. Identifiability
b. Held for distribution
c. Control over a resource
d. Existence of future economic benefits or service potential

2. According to the GAM for NGAs, an intangible asset is identifiable when it

a. is separable, i.e., capable of being separated and divided from the entity and sold,
transferred, licensed, rented, or exchanged, either individually or together with a related
contract, identifiable asset or liability, regardless of whether the entity intends to do so.
b. arises from binding arrangements including contractual or other legal rights, regardless of
whether those rights are transferable or separable from the entity or from other rights and
obligations.
c. a or b
d. a and b

3. An active market is a market in which all the following conditions exist, except
a. the items traded in the market are homogeneous
b. willing buyers and sellers can normally be found at any time
c. prices are available to the public
d. the price is most advantageous

4. It is the systematic allocation of the depreciable amount of an intangible asset over its useful life.
a. Cost allocation concept
b. Impairment
c. Depreciation
d. Amortization

5. It refers to the application of research findings or other knowledge to a plan or design for the
production of new or substantially improved materials, devices, products, processes, systems, or
services before the start of commercial production or use.
a. Research
b. Development
c. R & D activities
d. Internal generation
6. A government entity acquires an intangible asset with finite useful life for ₱100. Assuming the
entity uses the maximum amortization period and the estimate of residual value allowed under
the GAM for NGAs, the appropriate annual amortization expense on the intangible asset is
a. ₱10
b. ₱9.5
c. ₱50
d. none of these
A (100 ÷ 10 yrs.) = 10

7. A government entity acquires an intangible asset with finite useful life for ₱100,000 on October
20, 20x1. The intangible asset is estimated to have a useful life of 5 years. The accumulated
amortization on December 31, 20x1 is
a. 3,333
b. 5,000
c. 20,000
d. 0

A (100,000 x 2 mos. /60 mos.) = 3,333

8. Goodwill is considered an unidentifiable asset because

a. it cannot be sold separately and therefore not separable.
b. it does not arise from contractual rights.
c. it has physical substance.
d. a and b

9. At the beginning of Year 1, a government entity acquires an intangible asset for ₱100,000. The
intangible asset has a useful life of 10 years. At the end of Year 3, the entity determines an
indication of impairment and makes the following estimates:
Fair value less costs to sell 60,000
Value in use 50,000

How much is the impairment loss?

a. 10,000
b. 20,000
c. 30,000
d. 0

A (100,000 x 7/10) – 60,000 = 10,000

10. Use the information in #9 above. At the end of Year 6, Entity A determines an indication that the
previous impairment may no longer exist and makes the following estimates:
Fair value less costs to sell 42,000
Value in use 45,000

How much is the gain on the reversal impairment loss?

 a. 10,714
b. 8,714
c. 5,714
d. 0

Recoverable amount (VIU – higher): 45,000

CA had no I.L. been recognized in previous period:
(100,000 x 4/10) = 40,000
CA after the I.L: (60,000 x 4/7) 34,286
Gain on reversal of I.L. = (40,000 – 34,286) = 5,714

“Pride goes before destruction, a haughty spirit before a fall.” (Proverbs 16:18)

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