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Chapter 08 - Accounting for intangibles
1. Intangible assets that are amortised are no longer subjected to impairment testing.
True False
2. Research of market potential prior to the launch of a product is permissible to be capitalised as an intangible
asset.
True False
3. Internally generated brands, mastheads, publishing titles and customer lists are permitted to be recognised as
intangible assets.
True False
4. AASB 138 permits the use of revaluation model for intangible assets if there is an active market to determine
fair value.
True False
5. The revaluation model requires all intangible assets in the same class to have a fair value determined by
reference to an active market.
True False
6. If the fair value of a revalued intangible asset can no longer be determined by reference to an active market,
AASB 136 requires the use of the cost model.
True False
7. Internally generated identifiable intangible assets may be recognised for financial accounting purposes in
Australia.
True False
1
8. Goodwill is a term used for the composite asset of identifiable intangibles:
True False
9. There are only rare occasions when an identifiable intangible asset should be amortised.
True False
10. International convergence has meant that there is no longer one specific standard related to intangibles:
True False
11. Development costs are less likely to meet the test for deferral than research costs:
True False
12. Compared to the requirement in the US, the treatment of research and development costs in Australia is less
conservative (that is, likely to result in higher profits):
True False
13. AASB 138 requires that all intangibles, whether purchased or internally generated, be capitalised.
True False
14. Continuously Contemporary Accounting emphasises an entity's ability to adapt. Therefore goodwill is
considered an important asset in this model:
True False
15. Intangible assets without a limited useful life cannot be recorded under AASB 138 as they cannot be
amortised.
True False
2
16. According to AASB 138 on intangible assets, if an entity buys another entity separate values can be
assigned to purchased goodwill and to a brand name:
True False
17. Expenditure on an intangible asset that was initially expensed may be recognised as part of an intangible
asset at a later date.
True False
18. AASB 138 prohibits the recognition of intangible assets using the revaluation model.
True False
19. Identifiable intangible assets are those intangible assets that:

A. Have been purchased by the entity from external parties.
B. Have an unlimited life.
C. Can have a value placed on them separately from other assets of the entity.
D. Cannot be separately sold.
E. All of the given answers.
20. Examples of intangible assets include:

A. Loyal customers.
B. Patents and trademarks.
C. Provisions.
D. Loyal customers, patents and trademarks.
21. Examples of elements of a business that commonly make up goodwill are:

A. Patents and licences.
B. Trademarks and brand names.
C. Research and development.
D. Established reputation and loyal customers.
3
22. Because intangible assets have no physical form:
A. They are not subject to the recognition criteria of other assets and may be recorded if they satisfy the three
elements of the definition.
B. They must be expensed immediately as assets must be able to be measured.
C. They have no real value and should be excluded from accounting reports.
D. They cannot be sold separately and must all be classified as unidentifiable.
E. None of the given answers.
23. An intangible asset may be recorded.

A. If acquired from an external party at a cost.
B. If it is internally generated and fits the definition of an asset and meets the associated recognition criteria.
C. At a value other than cost if that value more reliably records the worth of the intangible asset.
D. At the cost of the asset, which must exclude any additional expenditure required to prepare the asset for use.
E. If acquired from an external party at a cost, and at the cost of the asset, which must exclude any additional
expenditure required to prepare the asset for use.
24. In order to determine whether or not expenditure should be treated as an intangible asset, the relevant test to
apply in Australia is:
A. It should be recognised when (a) it is definite that future economic benefits will eventuate or (b) the asset
possesses a cost or other value that can be measured reliably.
B. It should be recognised if (a) the expenditure is with an external party in an arm's length transaction for a
separately identifiable intangible asset or (b) the intangible asset arises as the difference between the net
tangible assets of an entity and the price paid for that entity.
C. It should be recognised if (a) it is part of a specified plan by management to develop and maintain a
separately identifiable asset or (b) the intangible asset was purchased in an arm's length transaction and is
actively traded in a market.
D. It should be recognised when and only when (a) it is probable that future economic benefits will eventuate
and (b) the asset possesses a cost or other value that can be measured reliably.
25. AASB 138 states that intangible assets:

A. May not be revalued and must be amortised over their useful lives.
B. Are only able to be revalued if they have been internally generated and there is an active market for them.
C. May only be revalued to their fair value as assessed by a licensed valuer.
D. may be measured by using either the cost model or the revaluation model.
4
26. AASB 138 defines development as:
A. The activities undertaken with specific commercial objectives, including original research, to develop plans
or designs for new products or significant improvements to existing products.
B. The application of research findings or other knowledge to a plan or design for the production of new or
substantially improved material, devices, processes, systems or services prior to the commencement of
commercial production or use.
C. The activities undertaken to translate research findings into feasible projects for subsequent development for
commercial objectives such that the recoverable amount is expected to be greater than the cost.
D. The activities undertaken with the expectation by management that future economic benefits in the form of
new products or improvements to existing products are likely to result, based on research completed to date.
27. What is the test for deferral of research costs as required by AASB 138?
A. Research costs can be deferred (recorded as an asset) when it is probable that the project they are applied to
will bring future economic benefits.
B. Research costs may not be deferred unless it is almost certain that the project they are applied to will bring
future economic benefits.
C. Research costs may not be recorded as an intangible asset.
D. Research costs may be deferred if the entity can demonstrate that an intangible asset exists and that it will
generate future economic benefits.
E. Research costs may be recorded as an intangible asset if the company intends to develop the product further.
28. Which of the following statements is correct with respect to research and development expenditures in
accordance with AASB 138?
A. Activities aimed at obtaining knowledge that is likely to produce a viable commercial product can be
capitalised.
B. Formulation, design, evaluation and final selection of alternative materials to be used in producing a viable
commercial product can be capitalised.
C. Design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial
production can be capitalised.
D. Search for, evaluation and final selection of, applications of research findings and other knowledge can be
capitalised.
5
29. The requirement of AASB 138 in relation to the amortisation of development cost is that:
A. It is to be amortised straight-line over a period not greater than 20 years.
B. It is to be amortised from the time of deferral so as to match the cost to the related benefits.
C. It is to be amortised using an accelerated depreciation rate over a period not exceeding 10 years.
D. It is to be amortised from the time the asset is available for use and shall reflect the consumption of the
economic benefits by the entity.
30. Glass 4 Windows is involved in a research and development project to create a filtering window that
removes the need for curtains. For the current year ended 30 June 2004 expenditure on the project is as follows:
Research $235,000
Development costs $350,000
The window is expected to earn revenues of $70,000 per year for the 10 years commencing 1 July 2004. Assuming straight-line amortisation, how
much of the research and development cost should be expensed this period and what amount should be amortised in the year ended 30 June 2007?
A. Expensed in 2004: $58,500 Amortisation in 2007: $58,500
B. Expensed in 2004: $235,000 Amortisation in 2007: $35,000
C. Expensed in 2004: $235,000 Amortisation in 2007: $28,000
D. Expensed in 2004: $350,000 Amortisation in 2007: $23,500
31. Walking on Air is developing a new form of individual transport that will act like a personal hovercraft.
Costs for the year ended 30 June 2004 are:
Research $950,000
Due to the high individual cost of items sales of this 'prototype' model will be small and generate $100,000 per year over the next 4 years. Following
that time, a new and cheaper consumer model will be under production based on the research developed for the prototype; however, it will require
additional development expenditure. How much of the research and development cost should be expensed in the period ended 30 June 2004 and what
amount should be amortised in the year ended 30 June 2006 (rounded to the nearest dollar)?
A. Expensed in 2004: $1 200,000 Amortisation in 2006: $100,000
D. Expensed in 2004: $1,200,000 Amortisation in 2006: $30,000
E. Expensed in 2004: $160,000 Amortisation in 2006: $160,000
6
32. There is a concern that research and development may be reduced as a result of the new requirements in
AASB 138 because:
A. Companies will not have the cash available to pay for the research expenses up-front.
B. Recognising expenses early will allow for larger profits later, which will help smaller firms.
C. The 'horizon problem' suggests managers will not invest in long-term projects that do not immediately
increase profits.
D. Shareholders are only interested in short-term profits and will not be impressed by strategies that attempt to
increase the long-term value of their shares.
33. Castle Co Ltd is working on three research projects. Project Jonah is government-sponsored research on
synthesising currently available research results on the possible triggers of asthma attacks. Project Beta involves
researching the genetic tags associated with heart disease based on the genome project. A test to identify the
predisposition to heart disease in children has been developed and will be on the market in 2003. Since 2001
research and development expenditures on this project are applied development costs only. Project Sigma is
cutting edge research being conducted to try and discover a means of 'disassembling' molecules and then
'reassembling' them in their original form. The company hopes that this work will lay the basis for future
dreams of teleportation as a method of transport. Details of expenditures and recoverable amounts expected
beyond a reasonable doubt at this time are:
Actual Budget
$000 $000
Project 2001 2002 2003 2004
Jonah
Development expenditure 20 15 5 0
Expected revenue inflows 10 0 0 0
Beta
Sigma
What is the total research and development deferral for each project as at the end of the year 2002?
A. Jonah: $15,000 Beta. $90,000 Sigma. $0
B. Jonah: $20,000 Beta. $50,000 Sigma. $30,000
C. Jonah: $15,000 Beta. $70,000 Sigma. $50,000
D. Jonah: $0 Beta. $90,000 Sigma. $0
7
34. Serendipity Ltd is working on two independent research and development projects. Project A has recently
been fruitful and the resulting product has been marketed, unfortunately with limited success. Development of
the product is continuing in an effort to improve its marketability. Project B is due for product release in one
year's time. The initial marketing surveys and forward contracts suggest that the outcome for this product is
very favourable. The following information relates to the expenditures for the current period and budgeted
figures for the next 3 years. All research costs in prior periods were expensed. The budgeted figures are
considered accurate beyond a reasonable doubt.
Actual $000 Budg

et
$000
Project 2003 2004 2005 2006
A
Research 12 0 0 0
B
Research 41 0 0 0
What is the research and development deferral for each project in 2003?
A. Project A. $5,000 Project B. $0
B. Project A. $47,000 Project B. $131,000
C. Project A. $30,000 Project B. $90,000
D. Project A. $62,000 Project B. $131,000
35. AASB 138 describes the distinction between the treatment of internally generated goodwill and purchased
goodwill (as well as other intangibles) as arising because:
A. The two different sources of goodwill result in two different types of asset.
B. Internally generated goodwill is developed in order to be sold, so its value will be recognised at that time.
C. Internally generated goodwill cannot be reliably measured.
D. Recording purchased goodwill could lead to the manipulation of profit and asset amounts.
8
36. The treatment of internally generated goodwill varies from purchased goodwill under AASB 138 in that:
A. Purchased goodwill is not amortised whereas internally generated goodwill is assumed to be maintained
indefinitely.
B. Purchased goodwill may be recorded as an asset, whereas internally generated goodwill may not.
C. Internally generated goodwill is to be amortised over a period of no greater than 20 years, whereas purchased
goodwill may not be recorded.
D. Purchased goodwill is to be expensed in the period it is bought whereas internally generated goodwill is to be
deferred and amortised over a period of no less than 20 years.
37. Purchased goodwill is recognised as the amount of:

A. The excess of the cost of acquisition incurred by an acquirer over the fair value of the identifiable net assets
acquired.
B. The difference between the cost of acquisition of a subsidiary and the realisable value of net assets of the
subsidiary.
C. The lower of the sum of related expenditures on advertising and promotion undertaken in the last 2 years by
the subsidiary being purchased and the independent valuation of the market value of that subsidiary's goodwill.
D. The excess of the cost of acquisition of another entity by an acquiring entity over the recoverable value of
the identifiable net assets acquired.
E. The excess of the cost of acquisition incurred by an acquirer over the fair value of the identifiable net assets
and contingent liabilities acquired.
38. Far-flung Co Ltd purchases Local Co Ltd for the purchase consideration of:
Cash $100,000
Shares in Far-flung Co Ltd 50,000 shares with a market value of $1.60
Land Carrying value of $90,000Fair value of $100,000
Far-flung incurred legal fees of $6,000 to complete the acquisition. Local Co Ltd had the following assets and liabilities at the time of the purchase:
Carrying amount Recoverable amount Fair value
Assets:
Land 100,000 150,000 200,000
Machinery 50,000 80,000 85,000
Cash 20,000
Liabilities:
Loan 105,000
What is the value of goodwill, if any?

A. $0
B. $80,000
C. $141,000
D. $86,000
9
39. Earth Ltd acquired Moon Ltd on 1 July 2009 for the sum of $100,000. On the same date Moon Ltd has the
following assets and liabilities:

Assets:
Land 100,000 130,000 150,000
Machinery 50,000 30,000 40,000
Cash 20,000
Liabilities:
Loan 105,000
Contingent liabilities 80,000

A. Not required to recognise goodwill.
B. $35,000
C. $75,000
D. Surplus of $5,000
40. Buster Ltd had purchased goodwill to the value of $100,000 recorded in its consolidated financial
statements. The goodwill has been determined to have an indefinite useful life. However, one year later Buster
Ltd's cash generating units has been determined to have incurred an impairment loss of $13,000. What is the
appropriate action for Buster limited to comply with AASB 138 "Intangible Assets" and AASB 136
"Impairment of Assets"?
A. Write-off goodwill in its entirety as goodwill no longer exists.
B. Recognise impairment loss of $13,000 and credit goodwill.
C. Amortise goodwill for 20 years using straight-line method.
D. Recognise impairment loss of $13,000 and credit equity.
41. The release of AASB 138 has had what impact on the methods of amortising goodwill?
A. The choice to use the inverted sum-of-digits method was phased out over a period of 15 years, to be replaced
by straight-line depreciation.
B. The option to amortise goodwill was removed and replaced with annual impairment testing.
C. Entities were given the option of continuing to amortise goodwill or to subject it to impairment testing each
year.
D. All entities were required to amortise goodwill over 20 years using the straight-line method to allow
comparisons.
10
42. AASB 138 contains some elements that seem to be reactions to opportunistic behaviour by preparers of
accounts and to the degree of uncertainty surrounding goodwill as an unidentifiable intangible asset. These
elements include:
A. The prohibition on recording internally generated goodwill.
B. The requirement to use a specific rate of amortisation.
C. The specification of impairment testing.
D. The prohibition on recording internally generated goodwill and the specification of impairment testing.
43. The argument by Pacific Dunlop (1994) is that the accounting treatment of goodwill, particularly the
requirement to amortise it over 20 years, places Australian companies at a competitive disadvantage
internationally. Miller (1995) analyses this view and argues that:
A. The research that has shown accounting figures to be used in a mechanistic way suggests that Australian
firms will be disadvantaged relative to international competitors in the takeovers market.
B. Sophisticated users will be aware that there are no direct cash-flow effects of the different amortisation
treatments for goodwill. The effect of differential taxation treatments (since the ATO does not permit a
deduction for the amortisation of goodwill) will, however, have a negative impact on Australian companies.
C. The efficient market hypothesis maintains that the capital market will impound accounting information
efficiently into the price of shares. Therefore if Australian companies are required to report lower earnings
through goodwill amortisation they will be valued at a lower amount than they would otherwise be by investors
in the capital market. This would reduce their ability to bid for other companies in a takeover situation.
D. The amortisation of goodwill can be a very significant cost for companies that have purchased a reasonable
number of subsidiaries. Companies that are active in the takeover market in this way will be negatively
impacted by the reporting of lower profits as a result of Australia's requirement that they amortise goodwill over
a maximum of 20 years, whereas other countries permit a 40 year or unlimited life for goodwill.
44. The approach to accounting for intangibles raises some issues because:
A. Assets are now subject to impairment testing, which will remove the professional judgement required for
amortisation.
B. Consistency has now been achieved regarding research and development meaning entities cannot claim to
have expended resources on potential benefits while other entities could not.
C. Many intangible assets will not be recognised under this approach, particularly in regard to internally
generated assets.
D. Intangible assets are more likely to be recorded at fair values because of the active market criteria, which
may overstate asset values.
11
45. Prior to the introduction of AASB 138 companies had found ways to circumvent the requirements of the
revised (1996) version of AASB 1013. These methods included.
A. Using the inverted sum-of-digits amortisation technique.
B. Calculating goodwill as the difference between the carrying value of the net assets of the acquired company
and the consideration paid.
C. Requiring the purchased company to make excessive provisions for restructuring costs to be undertaken after
the company is purchased.
D. Attributing the excess of the cost of acquisition over the fair value of the net identifiable assets of the
company acquired to brands, licences and other identifiable intangible assets.
46. Prior to the introduction of impairment testing companies had attempted to manipulate their accounts
through amortisation:
A. Because where managers were rewarded based on profits attained it was in their best interests to reduce
expenses while they held that position.
B. Because contractual arrangements such as debt covenants often required asset values to be maximised.
C. Recording higher amortisation expenses allowed profits to be reduced, thus allowing tax payments to be
minimised without any cash outflows.
D. Because where managers were rewarded based on profits attained it was in their best interests to reduce
expenses while they held that position; and because contractual arrangements such as debt covenants often
required asset values to be maximised.
47. During 2001 the Financial Accounting Standards Board in the United States indicated they would look to
change a requirement for the treatment of goodwill. That change is:
A. To remove the requirement to amortise goodwill and replace it with a requirement to write-down goodwill to
reflect any impairment in value.
B. To allow the recognition of internally generated goodwill.
C. To extend the period over which goodwill may be amortised.
D. To allow the inverted sum-of-digits method of amortisation.
48. Big Ltd has purchased 100 per cent of Little Ltd for a cash payment of $800,000. The additional costs to Big
Ltd to complete the purchase were $3,000. An extract from the balance sheet for Little Ltd at the date of
acquisition shows:
$ $
12
Assets
Current assets
Cash 12,000
Net accounts receivable 25,000
Inventory 80,000
Total current assets 117,000
Non-current assets
Land and buildings (net) 200,000
Vehicles (net) 90,000
Equipment (net) 157,000
Total non-current assets 447,000
Total assets 564,000
Liabilities
Accounts payable 8,000
Loan 100,000
Total liabilities 108,000
Net assets 456,000
Additional information:
The assets and liabilities of Little Ltd are stated at fair value except that:
land and buildings have a fair value of $300,000
accounts receivable have a fair value of $20,000
Little owns a licence that has not been recorded in the accounts. Its fair value is $150,000.
What is the amount of purchased goodwill, if any, that has been acquired by Big Ltd?
A. $242,000
B. $344,000
C. $252,000
D. $102,000
49. As part of adopting IFRS, goodwill acquired in a business combination is no longer amortised. Instead, the
acquirer shall test goodwill for impairment (AASB 3 "Business Combinations"). When is goodwill considered
to be impaired?
A. If the recoverable amount of the cash generating unit is greater than the unit's carrying amount.
B. If the recoverable amount of the cash generating unit is less than the unit's carrying amount.
C. If the value in use of the cash generating unit is greater than the unit's carrying amount.
D. If the fair value less costs to sell is greater than the unit's carrying amount.
13
50. Which of the following statement(s) in regard to goodwill is/are correct in accordance with AASB 136
A. An impairment loss must be recognised when the carrying amount of a cash-generating unit exceeds it
recoverable amount.
B. An impairment loss recognised may be reversed in subsequent period.
C. Value in use is the present value of future cash flows expected to be derived from a cash-generating unit.
D. All of the given answers.
E. An impairment loss must be recognised when the carrying amount of a cash-generating unit exceeds it
recoverable amount and an impairment loss recognised may be reversed in subsequent period.
51. Which of the following statements in regard to goodwill is/are correct in accordance with AASB 136
A. Goodwill may be amortised when it has a finite life.
B. Goodwill is subjected to impairment testing every three years.
C. Upward revaluation of goodwill is permitted as long as it is a reversal of prior years' impairment losses.
52. After initial recognition, the acquirer shall recognise goodwill at:
A. Historical cost.
B. Fair value.
C. Cost less accumulated amortisation.
D. Cost less accumulated impairment losses.
53. Which of the following intangible assets should be recognised in the balance sheet?
A. Internally generated goodwill in excess of recoverable amount.
B. Licenses with active market.
C. Purchased trademark.
E. Licenses with active market and purchased trademark.
14
54. Which of the following combination best demonstrates the value of goodwill?
I. Purchase consideration of subsidiary
II. Book Value of net assets held by subsidiary
III. Fair value of net identifiable assets
IV. Contingent liabilities
A. I less II
B. I less III
C. I less (II-IV)
D. I less (III-IV)
55. Broadbeach Ltd is a manufacturing company with three subsidiaries. The following information relates to
the goodwill account of Broadbeach Ltd for the year ended 30 June 2009:
(in dollars) Goodwill Accumulated impairment loss Carrying amount of CGU Recoverable amount ofCGU
Mantra Ltd 50,000 10,000 250,000 270,000
Oceania Ltd 40,000 NIL 310,000 250,000
Wave Ltd 60,000 NIL 450,000 600,000
In accordance with AASB 136, what is the net effect of above goodwill accounts on the income statement and balance sheet of Broadbeach Ltd?
Income Statement Balance Sheet
A. Increase Increase
B. Decrease Decrease
C. Increase Decrease
D. Decrease Increase
Ans: B
Mantra Ltd 50,000 10,000 250,000 270,000
Oceania Ltd 40,000 NIL 310,000 250,000
Wave Ltd 60,000 NIL 450,000 600,000
What is the carrying amount of goodwill as at 30 June 2009 consistent with AASB 136 "Impairment of Assets"?
A. Zero
B. $100 000
C. S140 000
D. $150 000
15
57. Which of the following statements is correct with respect to intangible assets?
A. Internally generated publishing titles may be revalued if fair value is determined by reference to an active
market.
B. Purchased goodwill should be amortised over a period of twenty years.
C. Internally generated brands are not recognized as intangible assets because expenditures in these assets are
not distinguishable from the cost of developing the business as a whole.
D. Internally generated brands are recognized as intangible assets because expenditures in these assets are not
distinguishable from the cost of developing the business as a whole.
58. Which of the following expenses are likely to satisfy the definition of an asset, and hence may be capitalised
as an intangible asset?
A. Expenses incurred to develop a brand name;
B. Advertising expenses
C. Research expenses
D. None of the given answers.
59. Palm Beach Ltd has a cash generating unit (CGU) and has been assessed for impairment and it has
determined an impairment loss of $100,000.
The following information relates to the assets as at 30 June 2012.
Carrying Amount RecoverableAmount

Buildings 800 000 900 000
Equipment 200 000 150 000
Goodwill 50 000
In accordance with AASB 136 "Impairment of Assets" what should be the carrying amount of buildings as at 30 June 2012?
A. $720,000
B. $760,000
C. $800,000
D. $900 000
16
60. In accordance with AASB 136 "Impairment of Assets" what should be the carrying amount of equipment as
at 30 June 2012?
A. $0
B. $100,000
C. $150,000
D. $190,000
61. Shelley Beach Ltd has one cash generating unit (CGU) and it has been determined that the CGU has
incurred an impairment loss of $80,000 for the year ended 30 June 2012.
The carrying amounts of the assets as at 30 June 2012 are as follows:
Carrying Amount
Buildings $300 000
Equipment 300 000
Goodwill 20 000
Total $620 000
In accordance with AASB 136 "Impairment of Assets", what should be the carrying amounts for buildings, equipment and goodwill as at 30 June
2012, respectively?
A. $240 000; $300 000; $0;
B. $260 000; $260 000; $20 000;
C. $270 000; $270 000; $0;
D. $300 000; $300 000; $20 000;
Carrying Amount
Buildings $300 000
Equipment 300 000
Goodwill 20 000
Total $620 000
In accordance with AASB 136 "Impairment of Assets", what is the appropriate journal entry to recognize the impairment loss for Shelley Beach
Ltd?
A.
Dr Impairment loss 80 000
Cr Accumulated impairment loss -Buildings 30 000
Cr Accumulated impairment loss -Equipment 30 000
Cr Accumulated impairment loss -Goodwill 20 000
17
B.
Dr Impairment loss – Identifiable intangible assets 80 000
C.
Dr Impairment loss – Goodwill 20 000
D.
Cr Buildings 30 000
Cr Equipment 30 000
Cr Goodwill 20 000
63. Discuss the benefits of subjecting goodwill to impairment testing as opposed to amortisation. In your
answer, consider the relevance and reliability qualitative characteristics of financial information.
64. Explain how AASB 138 "Intangible assets" may disadvantage Australian start-up companies with heavy
research and development activities. Contrast this with US start-up companies.
18
65. Outline the requirements of AASB 138 on recognition and measurement of research and development
activities.
66. Discuss the considerations outlined in AASB 138 on revaluation of intangible assets. What are the
implications of this standard on the relevance of financial information?
67. Discuss the factors considered to determine amortisation of deferred development costs.
68. Explain why research expenditures and expenditures on internally generated such as, brands, mastheads and
publishing titles are not capitalised regardless of whether they are likely to generate future economic benefits.
19
69. Explain why intangible assets are required to be reported as a separate class of asset in the statement of
financial position.
70. Discuss the implications of the 2007 global financial crisis on the valuation of intangibles.
20
08 Key
1. Intangible assets that are amortised are no longer subjected to impairment testing.
FALSE
Deegan - Chapter 08 #1
difficulty: EMPTY
learning goal: EMPTY
learning objective: EMPTY
level: EMPTY
lo: EMPTY
question type: EMPTY
source: EMPTY
type: EMPTY
2. Research of market potential prior to the launch of a product is permissible to be capitalised as an intangible
asset.
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
3. Internally generated brands, mastheads, publishing titles and customer lists are permitted to be recognised as
intangible assets.
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
1
4. AASB 138 permits the use of revaluation model for intangible assets if there is an active market to determine
fair value.
TRUE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
5. The revaluation model requires all intangible assets in the same class to have a fair value determined by
reference to an active market.
TRUE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
6. If the fair value of a revalued intangible asset can no longer be determined by reference to an active market,
AASB 136 requires the use of the cost model.
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
2
7. Internally generated identifiable intangible assets may be recognised for financial accounting purposes in
Australia.
TRUE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
8. Goodwill is a term used for the composite asset of identifiable intangibles:

FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
9. There are only rare occasions when an identifiable intangible asset should be amortised.
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
3
10. International convergence has meant that there is no longer one specific standard related to intangibles:
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
11. Development costs are less likely to meet the test for deferral than research costs:
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
12. Compared to the requirement in the US, the treatment of research and development costs in Australia is less
conservative (that is, likely to result in higher profits):
TRUE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
4
13. AASB 138 requires that all intangibles, whether purchased or internally generated, be capitalised.
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
14. Continuously Contemporary Accounting emphasises an entity's ability to adapt. Therefore goodwill is
considered an important asset in this model:
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
15. Intangible assets without a limited useful life cannot be recorded under AASB 138 as they cannot be
amortised.
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
5
16. According to AASB 138 on intangible assets, if an entity buys another entity separate values can be
assigned to purchased goodwill and to a brand name:
TRUE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
17. Expenditure on an intangible asset that was initially expensed may be recognised as part of an intangible
asset at a later date.
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
18. AASB 138 prohibits the recognition of intangible assets using the revaluation model.
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
6
19. Identifiable intangible assets are those intangible assets that:
A. Have been purchased by the entity from external parties.
B. Have an unlimited life.
C. Can have a value placed on them separately from other assets of the entity.
D. Cannot be separately sold.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
20. Examples of intangible assets include:

A. Loyal customers.
B. Patents and trademarks.
C. Provisions.
D. Loyal customers, patents and trademarks.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
7
21. Examples of elements of a business that commonly make up goodwill are:
A. Patents and licences.
B. Trademarks and brand names.
C. Research and development.
D. Established reputation and loyal customers.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
22. Because intangible assets have no physical form:

A. They are not subject to the recognition criteria of other assets and may be recorded if they satisfy the three
elements of the definition.
B. They must be expensed immediately as assets must be able to be measured.
C. They have no real value and should be excluded from accounting reports.
D. They cannot be sold separately and must all be classified as unidentifiable.

Difficulty: Fairly easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
8
23. An intangible asset may be recorded.
A. If acquired from an external party at a cost.
B. If it is internally generated and fits the definition of an asset and meets the associated recognition criteria.
C. At a value other than cost if that value more reliably records the worth of the intangible asset.
D. At the cost of the asset, which must exclude any additional expenditure required to prepare the asset for use.
E. If acquired from an external party at a cost, and at the cost of the asset, which must exclude any additional
expenditure required to prepare the asset for use.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
24. In order to determine whether or not expenditure should be treated as an intangible asset, the relevant test to
apply in Australia is:
A. It should be recognised when (a) it is definite that future economic benefits will eventuate or (b) the asset
possesses a cost or other value that can be measured reliably.
B. It should be recognised if (a) the expenditure is with an external party in an arm's length transaction for a
separately identifiable intangible asset or (b) the intangible asset arises as the difference between the net
tangible assets of an entity and the price paid for that entity.
C. It should be recognised if (a) it is part of a specified plan by management to develop and maintain a
separately identifiable asset or (b) the intangible asset was purchased in an arm's length transaction and is
actively traded in a market.
D. It should be recognised when and only when (a) it is probable that future economic benefits will eventuate
and (b) the asset possesses a cost or other value that can be measured reliably.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
9
25. AASB 138 states that intangible assets:
A. May not be revalued and must be amortised over their useful lives.
B. Are only able to be revalued if they have been internally generated and there is an active market for them.
C. May only be revalued to their fair value as assessed by a licensed valuer.
D. may be measured by using either the cost model or the revaluation model.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
26. AASB 138 defines development as:

A. The activities undertaken with specific commercial objectives, including original research, to develop plans
or designs for new products or significant improvements to existing products.
B. The application of research findings or other knowledge to a plan or design for the production of new or
substantially improved material, devices, processes, systems or services prior to the commencement of
commercial production or use.
C. The activities undertaken to translate research findings into feasible projects for subsequent development for
commercial objectives such that the recoverable amount is expected to be greater than the cost.
D. The activities undertaken with the expectation by management that future economic benefits in the form of
new products or improvements to existing products are likely to result, based on research completed to date.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
10
27. What is the test for deferral of research costs as required by AASB 138?
A. Research costs can be deferred (recorded as an asset) when it is probable that the project they are applied to
will bring future economic benefits.
B. Research costs may not be deferred unless it is almost certain that the project they are applied to will bring
future economic benefits.
C. Research costs may not be recorded as an intangible asset.
D. Research costs may be deferred if the entity can demonstrate that an intangible asset exists and that it will
generate future economic benefits.
E. Research costs may be recorded as an intangible asset if the company intends to develop the product further.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
28. Which of the following statements is correct with respect to research and development expenditures in
accordance with AASB 138?
A. Activities aimed at obtaining knowledge that is likely to produce a viable commercial product can be
capitalised.
B. Formulation, design, evaluation and final selection of alternative materials to be used in producing a viable
commercial product can be capitalised.
C. Design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial
production can be capitalised.
D. Search for, evaluation and final selection of, applications of research findings and other knowledge can be
capitalised.

Difficulty: Moderate
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
11
29. The requirement of AASB 138 in relation to the amortisation of development cost is that:
A. It is to be amortised straight-line over a period not greater than 20 years.
B. It is to be amortised from the time of deferral so as to match the cost to the related benefits.
C. It is to be amortised using an accelerated depreciation rate over a period not exceeding 10 years.
D. It is to be amortised from the time the asset is available for use and shall reflect the consumption of the
economic benefits by the entity.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
30. Glass 4 Windows is involved in a research and development project to create a filtering window that
removes the need for curtains. For the current year ended 30 June 2004 expenditure on the project is as follows:
Research $235,000
The window is expected to earn revenues of $70,000 per year for the 10 years commencing 1 July 2004. Assuming straight-line amortisation, how
much of the research and development cost should be expensed this period and what amount should be amortised in the year ended 30 June 2007?
A. Expensed in 2004: $58,500 Amortisation in 2007: $58,500
D. Expensed in 2004: $350,000 Amortisation in 2007: $23,500

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
12
31. Walking on Air is developing a new form of individual transport that will act like a personal hovercraft.
Costs for the year ended 30 June 2004 are:
Research $950,000
Due to the high individual cost of items sales of this 'prototype' model will be small and generate $100,000 per year over the next 4 years. Following
that time, a new and cheaper consumer model will be under production based on the research developed for the prototype; however, it will require
additional development expenditure. How much of the research and development cost should be expensed in the period ended 30 June 2004 and what
amount should be amortised in the year ended 30 June 2006 (rounded to the nearest dollar)?
A. Expensed in 2004: $1 200,000 Amortisation in 2006: $100,000
D. Expensed in 2004: $1,200,000 Amortisation in 2006: $30,000
E. Expensed in 2004: $160,000 Amortisation in 2006: $160,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
32. There is a concern that research and development may be reduced as a result of the new requirements in
AASB 138 because:
A. Companies will not have the cash available to pay for the research expenses up-front.
B. Recognising expenses early will allow for larger profits later, which will help smaller firms.
C. The 'horizon problem' suggests managers will not invest in long-term projects that do not immediately
increase profits.
D. Shareholders are only interested in short-term profits and will not be impressed by strategies that attempt to
increase the long-term value of their shares.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
13
33. Castle Co Ltd is working on three research projects. Project Jonah is government-sponsored research on
synthesising currently available research results on the possible triggers of asthma attacks. Project Beta involves
researching the genetic tags associated with heart disease based on the genome project. A test to identify the
predisposition to heart disease in children has been developed and will be on the market in 2003. Since 2001
research and development expenditures on this project are applied development costs only. Project Sigma is
cutting edge research being conducted to try and discover a means of 'disassembling' molecules and then
'reassembling' them in their original form. The company hopes that this work will lay the basis for future
dreams of teleportation as a method of transport. Details of expenditures and recoverable amounts expected
beyond a reasonable doubt at this time are:
Actual Budget
$000 $000
Project 2001 2002 2003 2004
Jonah
Beta
Sigma
What is the total research and development deferral for each project as at the end of the year 2002?
A. Jonah: $15,000 Beta. $90,000 Sigma. $0
B. Jonah: $20,000 Beta. $50,000 Sigma. $30,000
C. Jonah: $15,000 Beta. $70,000 Sigma. $50,000
D. Jonah: $0 Beta. $90,000 Sigma. $0

Difficulty: Difficult
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
14
34. Serendipity Ltd is working on two independent research and development projects. Project A has recently
been fruitful and the resulting product has been marketed, unfortunately with limited success. Development of
the product is continuing in an effort to improve its marketability. Project B is due for product release in one
year's time. The initial marketing surveys and forward contracts suggest that the outcome for this product is
very favourable. The following information relates to the expenditures for the current period and budgeted
figures for the next 3 years. All research costs in prior periods were expensed. The budgeted figures are
considered accurate beyond a reasonable doubt.
Actual $000 Budg

et
$000
Project 2003 2004 2005 2006
A
Research 12 0 0 0
B
Research 41 0 0 0
What is the research and development deferral for each project in 2003?
A. Project A. $5,000 Project B. $0
B. Project A. $47,000 Project B. $131,000
C. Project A. $30,000 Project B. $90,000
D. Project A. $62,000 Project B. $131,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
15
35. AASB 138 describes the distinction between the treatment of internally generated goodwill and purchased
goodwill (as well as other intangibles) as arising because:
A. The two different sources of goodwill result in two different types of asset.
B. Internally generated goodwill is developed in order to be sold, so its value will be recognised at that time.
C. Internally generated goodwill cannot be reliably measured.
D. Recording purchased goodwill could lead to the manipulation of profit and asset amounts.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
36. The treatment of internally generated goodwill varies from purchased goodwill under AASB 138 in that:
A. Purchased goodwill is not amortised whereas internally generated goodwill is assumed to be maintained
indefinitely.
B. Purchased goodwill may be recorded as an asset, whereas internally generated goodwill may not.
C. Internally generated goodwill is to be amortised over a period of no greater than 20 years, whereas purchased
goodwill may not be recorded.
D. Purchased goodwill is to be expensed in the period it is bought whereas internally generated goodwill is to be
deferred and amortised over a period of no less than 20 years.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
16
37. Purchased goodwill is recognised as the amount of:
A. The excess of the cost of acquisition incurred by an acquirer over the fair value of the identifiable net assets
acquired.
B. The difference between the cost of acquisition of a subsidiary and the realisable value of net assets of the
subsidiary.
C. The lower of the sum of related expenditures on advertising and promotion undertaken in the last 2 years by
the subsidiary being purchased and the independent valuation of the market value of that subsidiary's goodwill.
D. The excess of the cost of acquisition of another entity by an acquiring entity over the recoverable value of
the identifiable net assets acquired.
E. The excess of the cost of acquisition incurred by an acquirer over the fair value of the identifiable net assets
and contingent liabilities acquired.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
38. Far-flung Co Ltd purchases Local Co Ltd for the purchase consideration of:
Cash $100,000
Shares in Far-flung Co Ltd 50,000 shares with a market value of $1.60
Land Carrying value of $90,000Fair value of $100,000
Far-flung incurred legal fees of $6,000 to complete the acquisition. Local Co Ltd had the following assets and liabilities at the time of the purchase:
17
Assets:
Land 100,000 150,000 200,000
Machinery 50,000 80,000 85,000
Cash 20,000
Liabilities:
Loan 105,000

A. $0
B. $80,000
C. $141,000
D. $86,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
39. Earth Ltd acquired Moon Ltd on 1 July 2009 for the sum of $100,000. On the same date Moon Ltd has the
following assets and liabilities:
18
Assets:
Land 100,000 130,000 150,000
Machinery 50,000 30,000 40,000
Cash 20,000
Liabilities:
Loan 105,000
Contingent liabilities 80,000

A. Not required to recognise goodwill.
B. $35,000
C. $75,000
D. Surplus of $5,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
40. Buster Ltd had purchased goodwill to the value of $100,000 recorded in its consolidated financial
statements. The goodwill has been determined to have an indefinite useful life. However, one year later Buster
Ltd's cash generating units has been determined to have incurred an impairment loss of $13,000. What is the
appropriate action for Buster limited to comply with AASB 138 "Intangible Assets" and AASB 136
A. Write-off goodwill in its entirety as goodwill no longer exists.
B. Recognise impairment loss of $13,000 and credit goodwill.
C. Amortise goodwill for 20 years using straight-line method.
D. Recognise impairment loss of $13,000 and credit equity.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
19
41. The release of AASB 138 has had what impact on the methods of amortising goodwill?
A. The choice to use the inverted sum-of-digits method was phased out over a period of 15 years, to be replaced
by straight-line depreciation.
B. The option to amortise goodwill was removed and replaced with annual impairment testing.
C. Entities were given the option of continuing to amortise goodwill or to subject it to impairment testing each
year.
D. All entities were required to amortise goodwill over 20 years using the straight-line method to allow
comparisons.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
42. AASB 138 contains some elements that seem to be reactions to opportunistic behaviour by preparers of
accounts and to the degree of uncertainty surrounding goodwill as an unidentifiable intangible asset. These
elements include:
A. The prohibition on recording internally generated goodwill.
B. The requirement to use a specific rate of amortisation.
C. The specification of impairment testing.
D. The prohibition on recording internally generated goodwill and the specification of impairment testing.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
20
43. The argument by Pacific Dunlop (1994) is that the accounting treatment of goodwill, particularly the
requirement to amortise it over 20 years, places Australian companies at a competitive disadvantage
internationally. Miller (1995) analyses this view and argues that:
A. The research that has shown accounting figures to be used in a mechanistic way suggests that Australian
firms will be disadvantaged relative to international competitors in the takeovers market.
B. Sophisticated users will be aware that there are no direct cash-flow effects of the different amortisation
treatments for goodwill. The effect of differential taxation treatments (since the ATO does not permit a
deduction for the amortisation of goodwill) will, however, have a negative impact on Australian companies.
C. The efficient market hypothesis maintains that the capital market will impound accounting information
efficiently into the price of shares. Therefore if Australian companies are required to report lower earnings
through goodwill amortisation they will be valued at a lower amount than they would otherwise be by investors
in the capital market. This would reduce their ability to bid for other companies in a takeover situation.
D. The amortisation of goodwill can be a very significant cost for companies that have purchased a reasonable
number of subsidiaries. Companies that are active in the takeover market in this way will be negatively
impacted by the reporting of lower profits as a result of Australia's requirement that they amortise goodwill over
a maximum of 20 years, whereas other countries permit a 40 year or unlimited life for goodwill.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
21
44. The approach to accounting for intangibles raises some issues because:
A. Assets are now subject to impairment testing, which will remove the professional judgement required for
amortisation.
B. Consistency has now been achieved regarding research and development meaning entities cannot claim to
have expended resources on potential benefits while other entities could not.
C. Many intangible assets will not be recognised under this approach, particularly in regard to internally
generated assets.
D. Intangible assets are more likely to be recorded at fair values because of the active market criteria, which
may overstate asset values.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
45. Prior to the introduction of AASB 138 companies had found ways to circumvent the requirements of the
revised (1996) version of AASB 1013. These methods included.
A. Using the inverted sum-of-digits amortisation technique.
B. Calculating goodwill as the difference between the carrying value of the net assets of the acquired company
and the consideration paid.
C. Requiring the purchased company to make excessive provisions for restructuring costs to be undertaken after
the company is purchased.
D. Attributing the excess of the cost of acquisition over the fair value of the net identifiable assets of the
company acquired to brands, licences and other identifiable intangible assets.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
22
46. Prior to the introduction of impairment testing companies had attempted to manipulate their accounts
through amortisation:
A. Because where managers were rewarded based on profits attained it was in their best interests to reduce
expenses while they held that position.
B. Because contractual arrangements such as debt covenants often required asset values to be maximised.
C. Recording higher amortisation expenses allowed profits to be reduced, thus allowing tax payments to be
minimised without any cash outflows.
D. Because where managers were rewarded based on profits attained it was in their best interests to reduce
expenses while they held that position; and because contractual arrangements such as debt covenants often
required asset values to be maximised.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
47. During 2001 the Financial Accounting Standards Board in the United States indicated they would look to
change a requirement for the treatment of goodwill. That change is:
A. To remove the requirement to amortise goodwill and replace it with a requirement to write-down goodwill to
reflect any impairment in value.
B. To allow the recognition of internally generated goodwill.
C. To extend the period over which goodwill may be amortised.
D. To allow the inverted sum-of-digits method of amortisation.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
48. Big Ltd has purchased 100 per cent of Little Ltd for a cash payment of $800,000. The additional costs to Big
Ltd to complete the purchase were $3,000. An extract from the balance sheet for Little Ltd at the date of
acquisition shows:
$ $
23
Assets
Current assets
Cash 12,000
Net accounts receivable 25,000
Inventory 80,000
Total current assets 117,000
Non-current assets
Land and buildings (net) 200,000
Vehicles (net) 90,000
Equipment (net) 157,000
Total non-current assets 447,000
Total assets 564,000
Liabilities
Accounts payable 8,000
Loan 100,000
Total liabilities 108,000
Net assets 456,000
Additional information:
The assets and liabilities of Little Ltd are stated at fair value except that:
land and buildings have a fair value of $300,000
accounts receivable have a fair value of $20,000
Little owns a licence that has not been recorded in the accounts. Its fair value is $150,000.
What is the amount of purchased goodwill, if any, that has been acquired by Big Ltd?
A. $242,000
B. $344,000
C. $252,000
D. $102,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
24
49. As part of adopting IFRS, goodwill acquired in a business combination is no longer amortised. Instead, the
acquirer shall test goodwill for impairment (AASB 3 "Business Combinations"). When is goodwill considered
to be impaired?
A. If the recoverable amount of the cash generating unit is greater than the unit's carrying amount.
B. If the recoverable amount of the cash generating unit is less than the unit's carrying amount.
C. If the value in use of the cash generating unit is greater than the unit's carrying amount.
D. If the fair value less costs to sell is greater than the unit's carrying amount.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
50. Which of the following statement(s) in regard to goodwill is/are correct in accordance with AASB 136
A. An impairment loss must be recognised when the carrying amount of a cash-generating unit exceeds it
recoverable amount.
B. An impairment loss recognised may be reversed in subsequent period.
C. Value in use is the present value of future cash flows expected to be derived from a cash-generating unit.
E. An impairment loss must be recognised when the carrying amount of a cash-generating unit exceeds it
recoverable amount and an impairment loss recognised may be reversed in subsequent period.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
25
51. Which of the following statements in regard to goodwill is/are correct in accordance with AASB 136
A. Goodwill may be amortised when it has a finite life.
B. Goodwill is subjected to impairment testing every three years.
C. Upward revaluation of goodwill is permitted as long as it is a reversal of prior years' impairment losses.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
52. After initial recognition, the acquirer shall recognise goodwill at:
A. Historical cost.
B. Fair value.
C. Cost less accumulated amortisation.
D. Cost less accumulated impairment losses.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
26
53. Which of the following intangible assets should be recognised in the balance sheet?
A. Internally generated goodwill in excess of recoverable amount.
B. Licenses with active market.
C. Purchased trademark.
E. Licenses with active market and purchased trademark.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
54. Which of the following combination best demonstrates the value of goodwill?
I. Purchase consideration of subsidiary
II. Book Value of net assets held by subsidiary
III. Fair value of net identifiable assets
IV. Contingent liabilities
A. I less II
B. I less III
C. I less (II-IV)
D. I less (III-IV)

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
Mantra Ltd 50,000 10,000 250,000 270,000
Oceania Ltd 40,000 NIL 310,000 250,000
Wave Ltd 60,000 NIL 450,000 600,000
In accordance with AASB 136, what is the net effect of above goodwill accounts on the income statement and balance sheet of Broadbeach Ltd?
Income Statement Balance Sheet
27
A. Increase Increase
B. Decrease Decrease
C. Increase Decrease
D. Decrease Increase
Ans: B

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
Mantra Ltd 50,000 10,000 250,000 270,000
Oceania Ltd 40,000 NIL 310,000 250,000
Wave Ltd 60,000 NIL 450,000 600,000
What is the carrying amount of goodwill as at 30 June 2009 consistent with AASB 136 "Impairment of Assets"?
A. Zero
B. $100 000
C. S140 000
D. $150 000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
28
57. Which of the following statements is correct with respect to intangible assets?
A. Internally generated publishing titles may be revalued if fair value is determined by reference to an active
market.
B. Purchased goodwill should be amortised over a period of twenty years.
C. Internally generated brands are not recognized as intangible assets because expenditures in these assets are
not distinguishable from the cost of developing the business as a whole.
D. Internally generated brands are recognized as intangible assets because expenditures in these assets are not
distinguishable from the cost of developing the business as a whole.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
58. Which of the following expenses are likely to satisfy the definition of an asset, and hence may be capitalised
as an intangible asset?
A. Expenses incurred to develop a brand name;
B. Advertising expenses
C. Research expenses
D. None of the given answers.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
59. Palm Beach Ltd has a cash generating unit (CGU) and has been assessed for impairment and it has
determined an impairment loss of $100,000.
The following information relates to the assets as at 30 June 2012.
Carrying Amount RecoverableAmount
29
Buildings 800 000 900 000
Equipment 200 000 150 000
Goodwill 50 000
In accordance with AASB 136 "Impairment of Assets" what should be the carrying amount of buildings as at 30 June 2012?
A. $720,000
B. $760,000
C. $800,000
D. $900 000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
60. In accordance with AASB 136 "Impairment of Assets" what should be the carrying amount of equipment as
at 30 June 2012?
A. $0
B. $100,000
C. $150,000
D. $190,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
Carrying Amount
30
Buildings $300 000
Equipment 300 000
Goodwill 20 000
Total $620 000
In accordance with AASB 136 "Impairment of Assets", what should be the carrying amounts for buildings, equipment and goodwill as at 30 June
2012, respectively?
A. $240 000; $300 000; $0;
B. $260 000; $260 000; $20 000;
C. $270 000; $270 000; $0;
D. $300 000; $300 000; $20 000;

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
Carrying Amount
Buildings $300 000
Equipment 300 000
Goodwill 20 000
Total $620 000
In accordance with AASB 136 "Impairment of Assets", what is the appropriate journal entry to recognize the impairment loss for Shelley Beach
Ltd?
A.
31
B.
C.
Dr Impairment loss – Goodwill 20 000
D.
Cr Buildings 30 000
Cr Equipment 30 000
Cr Goodwill 20 000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
63. Discuss the benefits of subjecting goodwill to impairment testing as opposed to amortisation. In your
answer, consider the relevance and reliability qualitative characteristics of financial information.
Refer to Page 302, section headed "Are the new approaches to accounting for intangibles an improvement?".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
32
64. Explain how AASB 138 "Intangible assets" may disadvantage Australian start-up companies with heavy
research and development activities. Contrast this with US start-up companies.
Refer to Page 302, section headed "Are the new approaches to accounting for intangibles an improvement?".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
65. Outline the requirements of AASB 138 on recognition and measurement of research and development
activities.
Refer to Page 282, section headed "Research and development".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
66. Discuss the considerations outlined in AASB 138 on revaluation of intangible assets. What are the
implications of this standard on the relevance of financial information?
Refer to Page 277, section headed "Revaluation of intangible assets".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
33
67. Discuss the factors considered to determine amortisation of deferred development costs.
Refer to page 285, sub-section headed "Amortisation of deferred development costs".

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
68. Explain why research expenditures and expenditures on internally generated such as, brands, mastheads and
publishing titles are not capitalised regardless of whether they are likely to generate future economic benefits.
Refer to section on "Which intangible assets can be recognised and included in the statement of financial
position?"

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
69. Explain why intangible assets are required to be reported as a separate class of asset in the statement of
financial position.
Refer to section on "Introduction to accounting for intangible assets".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
34
70. Discuss the implications of the 2007 global financial crisis on the valuation of intangibles.
Refer to section on "Introduction to accounting for intangible assets".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
35
08 Summary
Category # of Questions
Deegan - Chapter 08 70
Difficulty: Difficult 4
Difficulty: Easy 17
Difficulty: Fairly easy 4
Difficulty: Moderate 27
1
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Financial Accounting Theory 4th Edition Deegan Test

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19. Identifiable intangible assets are those intangible assets that:

20. Examples of intangible assets include:

21. Examples of elements of a business that commonly make up goodwill are:

23. An intangible asset may be recorded.

25. AASB 138 states that intangible assets:

Actual $000 Budg

37. Purchased goodwill is recognised as the amount of:

What is the value of goodwill, if any?

Carrying amount Recoverable amount Fair value

What is the value of goodwill, if any?

Total assets 564,000

Total liabilities 108,000

Net assets 456,000

Carrying Amount RecoverableAmount

E. None of the given answers.

8. Goodwill is a term used for the composite asset of identifiable intangibles:

Deegan - Chapter 08 #10

Deegan - Chapter 08 #11

Deegan - Chapter 08 #12

Deegan - Chapter 08 #13

Deegan - Chapter 08 #14

Deegan - Chapter 08 #15

Deegan - Chapter 08 #16

Deegan - Chapter 08 #17

Deegan - Chapter 08 #18

Deegan - Chapter 08 #19

20. Examples of intangible assets include:

Deegan - Chapter 08 #20

Deegan - Chapter 08 #21

22. Because intangible assets have no physical form:

Deegan - Chapter 08 #22

Deegan - Chapter 08 #23

Deegan - Chapter 08 #24

Deegan - Chapter 08 #25

26. AASB 138 defines development as:

Deegan - Chapter 08 #26

Deegan - Chapter 08 #27

Deegan - Chapter 08 #28

Deegan - Chapter 08 #29

Deegan - Chapter 08 #30

Deegan - Chapter 08 #31

Deegan - Chapter 08 #32

Deegan - Chapter 08 #33

Actual $000 Budg

Deegan - Chapter 08 #34

Deegan - Chapter 08 #35

Deegan - Chapter 08 #36

Deegan - Chapter 08 #37