Since 1977

THEORY OF ACCOUNTS
ToA.1611 Intangible Assets

OCAMPO/CABARLES
MAY 2014
REVIEW QUESTIONS

1.

2.

PAS 38 applies to
a. Intangible assets that are not within the scope of
another Standard.
b. Financial assets, as defined in PAS 32 Financial
Instruments: Presentation.
c. The recognition and measurement of exploration
and evaluation assets.
d. Expenditure on the development and extraction of
minerals, oil, natural gas and similar nonregenerative resources.
Which is not within the definition of an intangible
asset?
a. Identifiable nonmonetary asset without physical
substance
b. A resource controlled by an entity as a result of
past event
c. A resource from which future economic benefits
are expected to flow to the entity
d. Held for use in the production or supply of goods
or services, for rental to others, or for
administrative purposes.

3.

Which item listed below does not qualify as an

intangible asset?
a. Computer software
b. Registered patent
c. Copyrights that are protected
d. Notebook computer

4.

Which of the following items qualify as an intangible

asset under PAS 38?
a. Advertising and promotion on the launch of a huge
product
b. College tuition fees paid to employees who decide
to enroll in an executive M.B.A. program at
Harvard University while working with the company
c. Operating losses during the initial stages of the
project
d. Legal costs paid to intellectual property lawyers to
register a patent

5.

6.

The cost of an intangible asset is composed of

a. Purchase price excluding import duties
nonrefundable taxes
b. Purchase price including import duties
nonrefundable taxes
c. Purchase
including
both
refundable
nonrefundable taxes
d. Purchase price including trade discounts
rebates

and
and
and
and

Which is incorrect concerning the recognition and

measurement of an intangible asset?
a. If an intangible asset is acquired separately, the
cost comprises its purchase price, including import
duties and taxes and any directly attributable
expenditure of preparing the asset for its intended
use.
b. If an intangible asset is acquired in a business
combination that is an acquisition, the cost is
based on its fair value at the date of acquisition.
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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d.

If payment for an intangible asset is deferred

beyond normal credit terms, its cost is equal to the
total payments over the credit period.

7.

The cost of internally generated intangible asset

includes the following, except
a. Cost of materials and services used or consumed in
generating the intangible asset
b. Expenditure on training staff to operate the asset
c. Cost to register a legal right
d. Salaries, wages and other employment related
costs of personnel directly engaged in generating
the asset

8.

Legal fees incurred by a company in defending its

patent rights should be expensed when the outcome of
the litigation is
Successful
Unsuccessful
a. Yes
Yes
b. Yes
No
c. No
No
d. No
Yes

9.

When an internally generated asset meets the

recognition criteria, the appropriate treatment for costs
previously expensed is:
a. Reinstatement.
b. No adjustment as these amounts may not be
reinstated.
c. Include in the cost of the development of the
asset.
d. Capitalize into the cost of the asset and adjust
the opening balance of retained earnings.

10. According to the definition provided in PAS 38

Intangibles, activities undertaken in the research
phase of the generation of an asset may include:
a. The application of knowledge to a design for the
production of new materials;
b. The use of research findings to create a
substantially improved product;
c. Using knowledge to materially improve a
manufacturing device.
d. Original and planned investigation with the
prospect of gaining new scientific knowledge;
11. Which statement is correct regarding initial recognition
of research and development costs?
a.
All research costs should be charged to
expense.
b.
All
development
costs
should
be
capitalized.
c.
If an enterprise cannot distinguish the
research phase of an internal project to create an
intangible asset from the development phase, the
enterprise treats the expenditure for that project
as if it were incurred in the development phase
only.
d.
A research and development project
acquired in a business combination is not
recognized as an asset.

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ToA.1611

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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
IV only
b. II, and IV only
and IV

c.

II, III and

d.

I, II, III

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
IV only
b. II, and IV only
and IV

c.

II, III and

d.

I, II, III

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.

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b.
c.
d.

Depreciation deducted as part of research

and development costs.
Depreciation
or
immediate
write-off
depending on company policy.
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.
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.
b.
c.
d.

I only
I and II only
I and III only
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

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a.
b.
c.
d.

Is always equal to zero

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
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
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 companys assets exceeds
their cost.

d.

A company
relations.

has

exceptional

customer

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 -

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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c.
d.
2.

technical feasibility of the project being

established are met
Training costs of technicians used in research
can be capitalized
Designing of jigs and tools qualify as
research activities

1.
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.

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3.

4.

5.

5.
6.

7.

b. Carrying amount of the asset received.

c. Initial cost of the asset given up.
d. Replacement cost of the asset received.
2.
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
3.
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
4.
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
In relation to the amortization of intangible
assets, if an intangible asset has a finite useful
life:
6. a.
It must be amortized over a period
not exceeding 40 years;
7. b.
It must be amortized across a period
not exceeding 5 years;
8. c.
It is not subject to an annual
amortization charge;
9. d.
It must be amortized over that life.
10.
In relation to amortization of intangible assets,
PAS 38 Intangibles, requires that intangible
assets with indefinite useful lives:
11. a.
Are amortized by the straight-line
method across their useful lives;
12. b.
Must be amortized across a period of
no more than 20 years;
20.

13. c.
Are not subject to an amortization
charge;
14. d. Should not be amortized in a period in
which maintenance of the asset occurs.
15.
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.
16.
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.
17.
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.
18.
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21.

22.
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