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THEORY OF ACCOUNTS OCAMPO/CABARLES

ToA.1611 – Intangible Assets MAY 2014

REVIEW QUESTIONS

1. PAS 38 applies to d. If payment for an intangible asset is deferred

a. Intangible assets that are not within the scope of beyond normal credit terms, its cost is equal to the
another Standard. total payments over the credit period.
b. Financial assets, as defined in PAS 32 Financial
Instruments: Presentation. 7. The cost of internally generated intangible asset
c. The recognition and measurement of exploration includes the following, except
and evaluation assets. a. Cost of materials and services used or consumed in
d. Expenditure on the development and extraction of generating the intangible asset
minerals, oil, natural gas and similar non- b. Expenditure on training staff to operate the asset
regenerative resources. c. Cost to register a legal right
d. Salaries, wages and other employment related
2. Which is not within the definition of an intangible costs of personnel directly engaged in generating
asset? the asset
a. Identifiable nonmonetary asset without physical
substance 8. Legal fees incurred by a company in defending its
b. A resource controlled by an entity as a result of patent rights should be expensed when the outcome of
past event the litigation is
c. A resource from which future economic benefits Successful Unsuccessful
are expected to flow to the entity a. Yes Yes
d. Held for use in the production or supply of goods b. Yes No
or services, for rental to others, or for c. No No
administrative purposes. d. No Yes

3. Which item listed below does not qualify as an 9. When an internally generated asset meets the
intangible asset? recognition criteria, the appropriate treatment for costs
a. Computer software previously expensed is:
b. Registered patent a. Reinstatement.
c. Copyrights that are protected b. No adjustment as these amounts may not be
d. Notebook computer reinstated.
c. Include in the cost of the development of the
4. Which of the following items qualify as an intangible
asset under PAS 38? asset.
a. Advertising and promotion on the launch of a huge d. Capitalize into the cost of the asset and adjust
product the opening balance of retained earnings.
b. College tuition fees paid to employees who decide
to enroll in an executive M.B.A. program at 10. According to the definition provided in PAS 38
Harvard University while working with the company Intangibles, activities undertaken in the ‘research’
c. Operating losses during the initial stages of the phase of the generation of an asset may include:
project a. The application of knowledge to a design for the
d. Legal costs paid to intellectual property lawyers to production of new materials;
register a patent b. The use of research findings to create a
substantially improved product;
5. The cost of an intangible asset is composed of c. Using knowledge to materially improve a
a. Purchase price excluding import duties and manufacturing device.
nonrefundable taxes d. Original and planned investigation with the
b. Purchase price including import duties and prospect of gaining new scientific knowledge;
nonrefundable taxes
c. Purchase including both refundable and 11. Which statement is correct regarding initial recognition
nonrefundable taxes of research and development costs?
d. Purchase price including trade discounts and a. All research costs should be charged to
rebates expense.
b. All development costs should be
6. Which is incorrect concerning the recognition and capitalized.
measurement of an intangible asset? c. If an enterprise cannot distinguish the
a. If an intangible asset is acquired separately, the research phase of an internal project to create an
cost comprises its purchase price, including import intangible asset from the development phase, the
duties and taxes and any directly attributable enterprise treats the expenditure for that project
expenditure of preparing the asset for its intended as if it were incurred in the development phase
use. only.
b. If an intangible asset is acquired in a business d. A research and development project
combination that is an acquisition, the cost is acquired in a business combination is not
based on its fair value at the date of acquisition. recognized as an asset.
c. If an intangible asset is acquired free of charge or
by way of government grant, the cost is equal to
its fair value.

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EXCEL PROFESSIONAL SERVICES, INC.

12. According to PAS 38 Intangibles, in order to be b. Depreciation deducted as part of research

able to capitalize ‘development’ outlays an entity and development costs.
must be able to demonstrate the following: c. Depreciation or immediate write-off
I. Technical feasibility and intention of depending on company policy.
completing the asset so it will be available d. An expense at such time as productive
for use or sale. research and development has been
II. Its ability to reliably measure the obtained from the facility.
expenditure on the development of the
asset. 17. Operating losses incurred during the start-up
III. Ability to use or sell the asset. years of a new business should be
IV. How the asset will generate probable future a. Accounted for and reported like the
economic benefits. operating losses of any other business.
b. Written off directly against retained
a. I, II and IV only c. II, III and
earnings.
IV only
c. Capitalized as a deferred charge and
b. II, and IV only d. I, II, III
amortized over five years.
and IV
d. Capitalized as an intangible asset and
amortized over a period not to exceed 20
13. PAS 38 Intangibles, prohibits the recognition of
years.
the following internally generated identifiable
intangibles:
18. Start-up costs include organizational costs, such
I. Brands
as legal and state fees incurred to organize a
II. Mastheads
new business entity. These costs should be
III. Publishing titles
a. Capitalized and never amortized.
IV. Customer lists
b. Capitalized and amortized over 40 years.
a. I, II and IV only c. II, III and c. Capitalized and amortized over 5 years.
IV only d. Expensed as incurred.
b. II, and IV only d. I, II, III
and IV
19. Which statement is correct concerning the
14. Which of the following would be considered amortization of an intangible asset?
research and development? I. The cost less residual value of an intangible
a. Routine efforts to refine an existing product. asset with a finite useful life should be
b. Periodic alterations to existing production amortized over that life
lines. II. An intangible asset with an indefinite useful
c. Marketing research to promote a new life should not be amortized.
product. III. The maximum amortization period cannot
d. Construction of prototypes. exceed twenty years.
a. I only
15. Which of the following costs would be
b. I and II only
capitalized?
c. I and III only
a. Acquisition cost of equipment to be used on
d. Neither I, II nor III
current research project only.
b. Engineering costs incurred to advance the
20. A consideration not relevant in determining the
product to the full production stage.
useful life of the intangible asset is the
c. Cost of research to determine whether a
a. The period of control over the asset and
market for the product exists.
legal or similar limits on the use of the asset
d. Salaries of research staff.
b. Technical, technological, commercial or other
types of obsolescence
16. If a company constructs a laboratory building to
c. Expected actions of competitors or potential
be used as a research and development facility,
competitors
the cost of the laboratory building is matched
d. Initial cost
against earnings as
a. Research and development expense in the
period(s) of construction. 21. The residual value of an intangible asset

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EXCEL PROFESSIONAL SERVICES, INC.
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.
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
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ToA.1611
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.
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
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 -
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
1.
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.
EXCEL PROFESSIONAL SERVICES, INC.

b. Carrying amount of the asset received. 13. c. Are not subject to an amortization
c. Initial cost of the asset given up. charge;
d. Replacement cost of the asset received. 14. d. Should not be amortized in a period in
2. which maintenance of the asset occurs.
3. A brand name that was acquired separately 15.
should initially be recognized, according to PAS38 8. In relation to the amortisation of intangible
Intangible assets, at assets, the general rule in PAS 38 Intangibles, is
a. Recoverable amount that unless demonstrated otherwise:
b. Either cost or fair value at the choice of the a. The residual value does not enter into the
acquirer determination of the amortisation charge.
c. Fair value b. The residual need no be reviewed at the end
d. Cost
of each annual reporting period.
3.
4. Once recognized, intangible assets can be c. All intangible assets have a residual value at
carried at least equal to the amount of maintenance
a. Cost less accumulated amortization costs incurred.
b. Cost less accumulated amortization and less d. The residual value is presumed to be zero.
accumulated impairment losses
16.
c. Revalued amount less accumulated
9. Which statement is incorrect concerning
amortization
internally generated intangible asset?
d. Cost plus a notional increase in fair value
a. To assess whether an internally generated
since the intangible asset is acquired
4. intangible asset meets the criteria for
5. According to PAS38 Intangible assets, recognition, an enterprise classifies the
amortization of an intangible asset with a finite generation of the asset into a research phase
useful life should commence when and a development phase.
a. It is first recognized as an asset
b. The cost of an internally generated asset
b. it is probable that it will generate future
economic benefits comprises all expenditure that can be
c. It is available for use directly attributed or allocated on a
d. The costs can be identified with reasonable reasonable and consistent basis to creating,
certainty producing and preparing the asset for its
5.
intended use.
6. In relation to the amortization of intangible
assets, if an intangible asset has a finite useful c. Internally generated brands, mastheads,
life: publishing titles, customer lists and items
6. a. It must be amortized over a period similar in substance should not be
not exceeding 40 years; recognized as intangible assets.
7. b. It must be amortized across a period
d. Internally generated goodwill may be
not exceeding 5 years;
8. c. It is not subject to an annual recognized as an intangible asset.
amortization charge; 17.
9. d. It must be amortized over that life. 10. Internally generated goodwill is prohibited from
10. recognition in the financial statements of an
7. In relation to amortization of intangible assets, entity. The reason for this treatment is that:
PAS 38 Intangibles, requires that intangible a. Goodwill is not identifiable;
assets with indefinite useful lives: b. Goodwill is not measurable;
11. a. Are amortized by the straight-line c. It is not comparable to any other intangible
method across their useful lives; assets;
12. b. Must be amortized across a period of d. It is not prudent to recognize intangible
no more than 20 years; assets.
18.
20.
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21.

22.

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