(CPA REVIEW SCHOOL OF THE PHILIPPINES Manila FINANCIAL ACCOUNTING AND REPORTING —_ VALIX/SIV/VALDUESCALA/SANTOS/DELA CRUZ PAS 38 INTANGIBLE ASSETS 1. Which ofthe following isa eriterion that must be met for an item to be recognized as an intangible asset other than goodwill? The fir value can be measured relisly. The item is par of an activity aimed at gaining new scientific or technical knowledge. 6. The item i expected to be used in te production or supply of goods or services. 4. |The item is nonmonetary, identifiable and lacks physical substance 2. Which ofthe following does not qualify as an intangible asset? 2 Computer software : 5. Repersput © Copyright tats protected Notebook computer V 3. Which ofthe following items would qualify as mn intangible asset? ‘Advertising and promotion onthe launch of huge product . College tition fees paid to employees who decide to enroll i an executive MBA program at Harvard University while working with the entity ‘& Operating losses during the intial stages of the projet. 44. Legal costs paid to intellectual property lawyers to register a patent. 4. Which disclosure is not required with respect to intangible assets? : Useful life ofthe imangible asset 1b. Reconciliation of earring amount a tho beginning andthe end ofthe year ©. Contractual eommitmet for the acquisition of intangible asset 4. Fair value of similar intangible asset used by competitors 5. What valuation methods are used for intangible assets? 1. Cost model and fair value model ‘6 Revaluation model and fair value model «©. Cost model and fair value through profit or loss model 4. Cost model and evaluation model | | 6. An entity that acquired an intangible amet may use the revaluation model fér subsequent ‘measurement only when | The useful life ofthe imtangible asset can be reliably determined, . An active market exists forthe intangible asset. € The costof the intangible asset can be measured reiahly. 4. The intangible asset isa monetary asset. 7. Which statement is true conceming internally generated intangible asset? ‘a. The cost of an internally generated asset comprises all directly aiributable costs necessary create, produce and prepare the asset for the intended use. b. Intemally generated brands, mastheads, publishing titles, customer lists and items similar in! ‘substance shall not be recognized as intangible assets. . Intemally generated goodwill shall not be recognized as an intangible asset. 4. Alllof these statements are tru. 8, The cost of an intemally generated asst includes all ofthe following, exeept ‘2. Cost of materials and services used in generating the intangible asset. '. Compensation costs of personnel directly engaged in generating the asset, cc. Fees to register a legal right. Expenditure on training staff to operate the asset. Re Baca 6678Page 2 9. Under current accounting practice, intangible assets are classified as {© Amorizable or unamortizable. '. Limited life or indefinite life. €. Specifically identifiable or goodwill ype. 4. Legally restricted or goodwill ype. 10, An intangible asset is regarded as having an indefinite useful life when ‘There is no forseeable limit to the period nvrr-~hich the asset is expected to generate net cash inflows to the entity. '. There isa forsecable limit othe period over which the asset is expected to generate net cash inflows tothe entity. ‘e. The usefil life ofthe intangible asset arises from contractual right. 4. The useful life ofthe inangible asst arises from legal right. 11, Entities should evaluate indefinite life intangible assets at least annually for a Recoverabilty . Amonization Impairment 4. Esimated useful life 12, Which intangible asset should mot be amortized? Copyright b. Customer lst 6. Perpetual franchise 4. Allof these imargible assets shoul be amortized. 15, Whats he appropriate method of smorizing intangible asset? 4. Thestraight line method unless the pare in which he asset's economic benefits are consumed bby the entity can be determined reliably. . The double devning balance in al circumstances €. A subjective amount of petodic amortization without regard to any particular method 4. The staight line method inal circumstances 14, Amonization ofan intangible asset with finite useftl life shell commence when ‘a is ist recognized as an asset '. itis probatle tari will generote ture economic benefits c. Itis available forthe intended use. The cost can be measured with ressonable certainty, 15, Which statement describes the appropriate secounsing fr intangible asset with finite useful life? ‘a The costo the assets not arvotized but is petiodiclly teste for impairment 1. The cos. of the asso is amortized over the useful life and the asset is never tested for impairment The cos othe asst is amortized over 40 years a reasonable period The cost of the asset is amortized aver the useful life and the asset is periodically tested for ‘impairment when there is an indication cf impairment 16, Intangible asse's with indefinite life are tested for impairment a Quarterly atthe quarterly reporting date Annually atthe ennus! reporting dats ‘e. Biannualiy atthe epocting dst 4. There are no guidelines defining when intangible assets are tested for impairment 17. The major problem of sccounting for intangible asset is determining a Fair value b. Separability ©, Residual value ¢. Useful life 18, One factor that is not considered in determining the useful life of an intangible asset is ‘a. Residual value . Provisioa for renewal or extension Legal life 4. Expected action of competitors 6678| Page 3 19, Factors in determining the useful life of en intangible asst include all, except 4. The expected use of the asset. '. Any legal or contractual provision that mey mit the usefil life | ¢- Any provision for renewal or extension ofthe legal life. 4. The amortization method used. 20. The residual value of intangible asset with eine life is assumed zero, except when &. There isa commitment by a third party to purchase the asyet at the end ofthe usefl ie Db. There isan active market forthe asst atthe end ofthe useful lif. | © Pes ctcmeliment by third party to purchase he ast atthe end of wef Hor thee is am active market forthe asst atthe end of weful life. 44. There are no exceptions 21, Goodwil may be recorded when 4. Itisidenttied within an entity b. One entity acquires another in a business combination © The fair value of assets exceeds cost 4. An entity has exceptional customer relations. 22. Which intangible aset shouldbe reported asa separate line tern? & Goodwill : b. Franchise © Patent i d. Trademark 23. Which statement accurately describes the appropriate accountng for goodwill? shoud be esorded at cost an amortized oer 40-year period | b eshould be recorded at cost and amortized over a 10syar peri Teshould be recorded at cost and tested for impairment every thre years | 4. It shouldbe recorded at cost and not amortized but tested for impairment on an anpual basis and more often if certain evens occur j | 24. Goodwill should be tested for impairment at which ofthe following levels? 2 Eehseponing at | © Eshacpastr at © ach iio tem net | 4. Entire business as a whole | 25, An entity has determined thot fair value of cash generating unit exceeds the carrying amount. Which Statement is true concerning the impairment ofthe CGU? 4 Impaiment is not indiated and no sdtional analysis is necessary. | 'b. Goodwill should be written down as | The assets and liabilities should be valued to determine if thre has been impairment of goodwill! 4. Goodwill should be tested atthe entity evel. 26, Whea a patent is amortized the eet is usally made to The patent acount An accumulated amortization account | Anaccumulated deprecation account | 4. Anexpense account 27. A patent should be amortized over | ‘Twenty years ‘The useful life : ‘The useful life or twenty years, whichever is longer | The useful life or twenty years, whichever is shorter ‘ i aege 66781 Page 4 28, When an entity successfully defended a patent from intingement by a competitor, the cost of litigation should be charged to \ 4 Patent and amortized over the lege life ofthe patent. , Legal fees and amortized over five years or less. «. Expense ofthe period. 4. Patent and amortized over the remaining usefl life ofthe patent. 29, The cost of purchasing rights fora product that might otherwise have seriously competed with one ofthe purchaser's patented products should be ‘4. Charged offin the eureat period. '. Amortized over the legal life ofthe purchased patent. Added to fctory overiead and allocate to production of the purchaser's product. 4. “Amorized over the remaining useful life ofthe patent for the product whose market would have been impaired by competition from the newly patented product. 30. Copyright should be amortized over a Thelegal ie '. Thellife ofthe creator pls fifty years Tem years 4. The useful life or legal if, whichever is hore. 31. Which ofthe allowing shouldbe expense as ncued bythe franchisee? 4 Amount pai othe Fancisr fr the franchise - '. Payment to an eniy thr tun the fanchisor for hat entity's anche Legal fees paid the franchise's lawyers to obtain the aneise 4, Petodc payments othe faachisor based on the franchise's revenue 32, Which statement is true about development cost? ‘2. Development cost must be expensed. '. Development cost is always deferred and expensed against future revenue. «Development coat may be capitlized as an intangible asset in very restrictive situations. 4. Development cost is recorded as component af other comprehensive income. 33. Which statement is true when an entity has recently completed a research and development project? ‘Costs incured during the research phase canbe capitalized '. Costs incured during the development phase can be capitalized if criteria such as technical feasibility ofthe projects are met 6. Training cost of technicians used in research can be capitalized 4. Designing of jigs and tools qualify as researc activites. 34, Which best describes the current method of aeovunting for R and D? & Associating cause and effect . Systematic and rational allocation Income tox minimization 4. Immediate recognition as an expense 35. Which is not one ofthe criteria for development costs to be capitalized? ‘2 The entity has sufficient financial resources to complete the projet. '. Tae entity intends to complete the project and either use o sll the intangible asset. © The catity can reliably identify the research eosts incurred to bring the project to economic feasibility 4d. The project has achieved technical feasibility, 36. How should research and development costs be accounted for? 8. Capitalized wiven incurred and then amortized over the estimated usefil life 1. Expensed in the petiod incurred. ©. Either capitalized or expensed depending upon materiality, 4. Expensed in the period incurred unless it can be clearly demonstrated thatthe expenditure will hve altematve futur use or unless contractually reimbursable, 6678Page 5 '37, Which ofthe following research and development related costs should be capitalized and depreciated over curen an fate periods? r & Laterstory bling for vou aerate fre wes 8: ventory ed or sperm projet €. Administ ales lloeted to research and development 4. |Research findings purchased to aida research project curently in process 38, Wihich research dnd development costs should be capitalized and amortized? '&, | Labor and materia! costs incurred in building prototype model. 'b. |Cost of testing equipment that will also be used in another separate research and. {project scheduled to begin next year «. 'Adminisvative salaries allocated to research and development 4. ‘Reseach findings purctmsed from enoter enti. H 39. f an entity consructs a Inboratory building tobe used a a research and developme cost ofthe building is matched apis aang 0 Reseach and development expense inthe prod of onsnction, 5. Depreciation deducted spat of eseerch and development expense 6. Depreciation or immedinte wre depending on secoumtngplicy lopment facility, the 4. Anexpease a such time as productive development has been obtained ftom the feiity. 40. A research and development activity for which the cost should be expensed is 8 Enginering follow-through in early phase of commercial production ». Design construction, and testing of preproduction prototype and model | ‘s. Trouble shooting in connection with breakdown during commercial production 4, Periodic design changes 1o existing product ‘#1 Which ofthe following costs should be excluded from research and development expense? Modification ofthe design of «product Acquisition of R and D equipment for use in current project only Cost of marketing research for @ new product Engineering activity to advance the design of product tothe manufacturing stag| aesr 42, Which of the following would be considered research and development? Routine effort to refine an existing product. '. Periodic alteration to existing production line Marketing research to promote anew product 4. Construction of prototype 43, Which ofthe following costs should not be capitalized? ‘& Cost of equipment to be used on current and future research project ». Engineering cost incurred to advance the product to full production stage Cost incured to life « patent 4. Cost of testing prototype before economic feasibility has been demonstrated ‘44, The accountng for costs incurred in creating computer software isto Cepitalize all costs unt the software is sold. or ‘stablished forthe product. ae. Capitalize ll costs as incurred until a detailed program design or model is created, tare research and development expense when incured until technological feasibility hasbeen (Gusts research and development expense ifthe computer software has altemative future use,Page 6 43, Which statement is incorrect regarding internal use software? 4 The application and development costs of intemal use software should be amortized on the straight line basis unless anotier systematic and rational basis is more appropriate b. Inemal se stare is considered tobe sofa that is marketed so separate produ «Tho costs of testing and installing computer hardware shouldbe capitalized. 4. The costs of training and application maintenence should be expensed when incurred. 46, Which sutement is true regarding the proper accounting treatment of software costs? 4. Preliminary costs should be expensed as incurred . Application and development cost should be capitalized . Postimplementaton costs should be expensed as incurred. 4. All ofthese statements are te cbout software cost 47. Which statement is true about computer software? 8 Computer software is classified as a technology-based intangible asset. b. Computer software purchased for resleisteated as inventory. ‘©. Computer software purchased as an integral part of a computer controlled machine should be ‘weated as propery, plant and equipment 4. All of these statements are true about computer software 48, Sur-up costs including legal and tate fees incurred to organize a new entity should be 4 Capitalized and never amortized. ‘Capitalized and amortized over 40 yeas, © Capitalized and amortized over 5 years 4. Bxpensed as incurred 49. Operating losses ineusred during the start-up years of « new business should be “= Avcounted for and reported like oporainy loses Of any other BUSINESS. '. Written off directly against retained earings, © Capitalized asa deferred charge and amortized over five years 4. Capitalized as an intangible asset and amortized over twenty years. 50, Intangible assets are reported in the statement of financial position With un accumulated amortization account ‘6. Under property, plant and equipment ©. Asa separate line iter 4. Alllof these are ailowed in presenting intangible assets END 6678