Chapter 32

SMEs- Intangible Assets

QUESTIONS
1.) Define an intangible asset.
2.) When is an intangible asset identifiable?
3.) Explain the recognition of an intangible asset.
4.) Explain the initial measurement of an intangible asset acquired separately.
5.) Explain the initial measurement of an intangible asset acquired in a business
combination.
6.) Explain the initial measurement of an intangible asset acquired by
government grant.
7.) Explain the initial measurement of an intangible asset acquired by exchange.
8.) Explain the recognition of an internally generated intangible asset.
9.) Give example of items that are not capitalized as cost of intangible asset but
expensed when incurred.
10.)
Explain the subsequent measurement of an intangible asset under
PFRS for SMEs
11.)
Explain the useful life of an intangible asset.
12.)
Explain the amortization period for an intangible asset.
13.)
Explain the amortization method for an intangible asset.
14.)
Explain the residual value of an intangible asset.
15.)
Compare PFRS for SMEs and full PFRS with respect to intangible asset.

Problem 32-1 Multiple Choice (IFRS)

1. An intangible asset is defined as
a.
b.
c.
d.

An identifiable asset without physical substance.

A nonmonetary asset without physical substance.
An identifiable nonmonetary asset without physical substance.
An identifiable monetary and nonmonetary asset without physical
substance.

2. An intangible asset is identifiable when

a.
b.
c.
d.

It
It
It
It

is separable.
arises from contractual and other legal right.
is acquired in business combination.
is separable or it arises from contractual and other legal right.

3. On January 1, 2007 an SME (a publisher) acquired competitors

publishing title at certain amount. On January 1, 2010, the entity
commenced publishing using the new title. On December 31, 2014,
the entity decided to sell the publishing title and took actions that
make the sale within 12 months highly probable. The publishing title

was sold on March 31, 2015. The entity shall account for the
publishing title as
a. An intangible asset from January 1, 2007 to December 31, 2014 and as an
inventory from December 31, 2014 to the date of disposal on March 31,
2015.
b. An item of inventory from January 1, 2007 to the date of disposal on March
31, 2015.
c. An intangible asset from January 1, 2007 to the date of disposal on March
31, 2015.
d. An intangible asset from January 1, 2007 to December 31, 2014 and as
noncurrent asset held for sale from December 31, 2014 to March 31,
2015.
4. An SME must measure intangible assets after initial recognition
a. At fair value.
b. At fair value or at cost less any accumulated amortization and any
accumulated impairment losses for all items in the same class of
intangible asset.
c. At fair value or at cost less any accumulated impairment losses on an
item-by-item basis.
d. At cost less any accumulated amortization and any accumulated losses.
5. An SME acquired a trademark that has a remaining legal life of five
years but is renewable every ten years at a little cost. The useful life
of the trademark is
a. Five years
b. Presumed to be 10 years, if the entity is unable to make reliable estimate
of the useful life
c. Fifteen years
d. Indefinite
6. Under PFRS for SMEs, the cost of an intangible asset at initial
recognition is measured at fair value when
a.
b.
c.
d.

It is internally generated
It is acquired as part of business combination
It is acquired by way of government grant.
It is acquired as part of business combinations or acquired by way of
government grant.

7. The useful life of the intangible asset of an SME is considered to be

a.
b.
c.
d.

Either finite or indefinite

Finite
Indefinite
Ten years

8. Which of the following statement is true in relation to the

amortization of the intangible assets of an SME?
I.
II.

All intangible asset including goodwill are amortized over the

useful life.
All intangible assets with indefinite useful life are not
amortized but tested for impairment annually and whenever
there is an indication that the intangible asset may be
impaired.
a.
b.
c.
d.

I only
II only
Both I and II
Neither I nor II

9. An SME shall recognize an intangible asset when

a. It is probable that the expected future economic benefits that are
attributable to the asset will flow to the entity
b. The cost or value of the asset can be measured reliably
c. The intangible asset does not result from expenditure incurred internally
on an intangible item.
d. All of these.
10.
What is the accounting for research and development cost
incurred by an SME?
a. All research and development costs are capitalized.
b. All research and development costs are expensed when incurred.
c. All research costs are expensed when incurred and all development costs
are capitalized when criteria are met
d. All research costs are capitalized when certain criteria are met and all
development costs are expensed when incurred.

Problem 32-2 Multiple choice (IAA)

1. Intangible assets are reported in the statement of financial position
a.
b.
c.
d.

With an accumulated amortization

Under property, plant and equipment
As a separate line item.
None of these

2. Which is not possessed by an intangible asset?

a. Physical existence
b. Identifiable

c. Future benefit
d. Expensed over current and future years

3. The costs of an intangible asset includes all except

a.
b.
c.
d.

Purchase price
Legal fee
Other incidental expenses
All of these are included

4. Which of the following costs should be capitalized in the years

incurred?
a.
b.
c.
d.

Research and development cost

Cost to internally generate goodwill
Organization cost
Filing fee for a patent

5. Which of the following intangible assets should be amortized under

PFRS and SMEs?
a.
b.
c.
d.

Copyright
Customer list
Goodwill
All of these intangible assets should be amortized.

6. 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
d. Capitalized as an intangible asset.
7. Start-up costs incurred to operate a new business should be
a.
b.
c.
d.

Capitalized and never amortized.

Capitalized and amortized over 40 years.
Capitalized and amortized over 5 years.
Expensed as incurred

8. Which of the following intangible assets could not be sold

separately?
a. Patent
b. Copyright
c. Goodwill

d. Trademark
9. Goodwill may be recorded when
a.
b.
c.
d.

It is purchased from another entity

One entity acquires another in a business combination
The fair value exceeds cost
An entity has exceptional customer relation

10.

Goodwill is a master valuation account because

a. It represent the purchase price of a business

b. It is the difference between the purchase price and the fair value of the
net identifiable assets acquired
c. The value of a business is computed without consideration of goodwill
d. It is based on estimate.
Problem 32-3 (IFRS)
An SME incurred the following expenditures in establishing a taxi business
in a local city during 2014:
May 1
General start-up cost
15,000
June 30

Legal cost directly attributable to the acquisition of

the taxi license.
30,000

June 30

Payment to the taxi licensing authority for the

taxi license, including P10,000
refundable
purchase taxes
100,000
July 1

Printing business cards of the drivers

10,000

July 1 Payment for an advertisement to be published

monthly for the next 12 months In a
local daily newspaper
50,000
The economic life of the taxi license is 5 years from the date of acquisition
on June 30 2014 with NIL residual value. The taxi drivers own the vehicles
they operate under SMEs taxi licenses.
REQUIRED:
Prepare journal entries to record the transaction of SME for the year
ended December 31, 2014

Problem 32-4 (IFRS)

On January 1, 2010, An SME acquired a patent for P 1,000,000. On
December 31, 2010, the management assessed that the useful life of the
patent is 20 years from the date of acquisition. The fair value less cost of
disposal of the patent is P 1,300,000 on same date. On December 31,
2014, the management assessed that the useful life of the patent is 14
years from the date of acquisition. The fair value less cost of disposal of
the patent is P 600,000 on same date. What is the impairment loss to be
recognized for the patent in 2014?
a.
b.
c.
d.

300,000
200,000
120,000
0