Chapter 08 Testbank Key

1. Intangible assets that are amortised are no longer subjected to impairment testing.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Section: General amortisation requirements for intangible assets
Topic: Amortisation of intangible assets

2. Research of market potential prior to the launch of a product is permissible to be capitalised as an intangible asset.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Capitalise or expense

3. Internally generated brands, mastheads, publishing titles and customer lists are permitted to be recognised as intangible assets.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-01 Understand what types of assets can be considered intangible assets and understand the differences between intangible and tangible assets.
Section: Introduction to accounting for intangible assets
Topic: Internally generated assets

4. AASB 138 permits the use of revaluation model for intangible assets if there is an active market to determine fair value.

TRUE

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Section: Revaluation of intangible assets
Topic: Revaluation of intangible assets

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

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Section: Required disclosures in relation to intangible assets
Topic: Revaluation of intangible assets

8-1
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McGraw-Hill Education.
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

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-06 Know when and how to revalue an intangible asset.
Section: Research and development
Topic: Measuring revalued intangible assets

7. Internally generated identifiable intangible assets may be recognised for financial accounting purposes in Australia.
TRUE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-01 Understand what types of assets can be considered intangible assets and understand the differences between intangible and tangible assets.
Section: Is the way we account for intangible assets an improvement over what we did in Australia before the introduction of IFRS in 2005?
Topic: Internally generated identifiable intangible assets

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

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Goodwill

9. There are only rare occasions when an identifiable intangible asset should be amortised.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Amortisaion

10. International convergence has meant that there is no longer one specific standard related to intangibles

FALSE

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-10 Be aware that the adoption of International Financial Reporting Standards (IFRSs) in Australia greatly reduced the amount of intangible
assets that Australian entities are permitted to recognise on their statements of financial position.
Section: Is the way we account for intangible assets an improvement over what we did in Australia before the introduction of IFRS in 2005?
Topic: Intangibles and international convergence

11. Development costs are less likely to meet the test for deferral than research costs.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Development costs

8-2
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McGraw-Hill Education.
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

AACSB: Analytic
Difficulty: Medium
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Comparing US and Australia's treatment of research and development

13. AASB 138 requires that all intangibles, whether purchased or internally generated, be capitalised.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Section: Introduction to accounting for intangible assets
Topic: Recording intangibles

14. Continuously Contemporary Accounting (CoCoA) emphasises an entity's ability to adapt. Therefore goodwill is considered an
important asset in this model.

FALSE

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Goodwill and CoCoA

15. Intangible assets without a limited useful life cannot be recorded under AASB 138 as they cannot be amortised.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Section: General amortisation requirements for intangible assets
Topic: Intangible assets recognition

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

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Introduction to accounting for intangible assets
Topic: Goodwill

8-3
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McGraw-Hill Education.
17. Expenditure on an intangible asset that was initially expensed may be recognised as part of an intangible asset at a later date.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Section: What is the initial basis of measurement of intangible assets?
Topic: Expenditure capitalisation into intangible asset

18. AASB 138 prohibits the recognition of intangible assets using the revaluation model.

FALSE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-06 Know when and how to revalue an intangible asset.
Section: Which intangible assets can be recognised and included in the statement of financial position?
Topic: Revaluation of intangible assets

19. The cost of a separately acquired intangible asset includes its purchase price and directly attributable cost for preparing the asset
for its intended use.

TRUE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Section: What is the initial basis of measurement of intangible assets?
Topic: Measurement of intangible assets

20. Where a revaluation occurs, it is to be to the fair value of the asset.

TRUE

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-06 Know when and how to revalue an intangible asset.
Section: Revaluation of intangible assets
Topic: Revaluation method

21. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-01 Understand what types of assets can be considered intangible assets and understand the differences between intangible and tangible assets.
Section: Introduction to accounting for intangible assets
Topic: Identifiable intangible assets

8-4
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McGraw-Hill Education.
22. Examples of intangible assets include:

A. loyal customers.
B. patents and trademarks.
C. provisions.
D. loyal customers, patents and trademarks.

AACSB: Reflective thinking

Difficulty: Easy
Section: Introduction to accounting for intangible assetsLO 8.1: Understand what types of assets can be considered intangible assets and understand the differences
between intangible and tangible assets.
Topic: Intangible assets

23. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Introduction to accounting for intangible assets
Topic: Goodwill

24. 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. none of the given answers is correct.

AACSB: Reflective thinking

Difficulty: Easy
Section: Introduction to accounting for intangible assetsLO 8.1: Understand what types of assets can be considered intangible assets and understand the differences
between intangible and tangible assets.
Topic: Recognition criteria intangible assets

25. 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.

AACSB: Reflective thinking

Difficulty: Easy
Section: Which intangible assets can be recognised and included in the statement of financial position?LO 8.1: Understand what types of assets can be considered
intangible assets and understand the differences between intangible and tangible assets.
Topic: Recognition criteria intangible assets

8-5
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McGraw-Hill Education.
26. 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.

AACSB: Analytic
Difficulty: Easy
Learning Objective: 08-02 Understand when expenditure on intangible assets should be recognised as an asset.
Section: Which intangible assets can be recognised and included in the statement of financial position?
Topic: Capitalisation

27. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-06 Know when and how to revalue an intangible asset.
Section: What is the initial basis of measurement of intangible assets?
Topic: Recognition of intangible assets

28. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Development activities

8-6
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McGraw-Hill Education.
29. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Treatment of research and development

30. 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.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Treatment of research and development

31. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Amortisation of development costs

8-7
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McGraw-Hill Education.
32. 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 2011 expenditure on the project is as follows:

The window is expected to earn revenues of $70 000 per year for the 10 years commencing 1 July 2011. 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 2014?

A. Expensed in 2011: $58 500; amortisation in 2014: $58 500

B. Expensed in 2011: $235 000; amortisation in 2014: $35 000
C. Expensed in 2011: $235 000; amortisation in 2014: $28 000
D. Expensed in 2011: $350 000; amortisation in 2014: $23 500

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Amortisation of development costs and expenseing

33. 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 2012
are:

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 2012 and what
amount should be amortised in the year ended 30 June 2006 (rounded to the nearest dollar)?

A. Expensed in 2012: $1 200 000; amortisation in 2014: $100 000

B. Expensed in 2012: $950 000; amortisation in 2014: $216 667
C. Expensed in 2012: $950 000; amortisation in 2014: $65 000
D. Expensed in 2012: $1 200 000, amortisation in 2014: $30 000

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Amortisation of development costs and expensing research

8-8
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McGraw-Hill Education.
34. 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.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Treatment of research and development and managerial incentives

35. 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 2013. Since 2011
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:

What is the total research and development deferral for each project as at the end of the year 2012?

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

AACSB: Reflective thinking

Difficulty: Hard
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Research and development deferral

8-9
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McGraw-Hill Education.
36. 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.

What is the research and development deferral for each project in 2013?

A. Project A $5000; 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

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Research and development deferral

37. 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.
AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Goodwill treatment

38. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Goodwill treatment

8-10
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McGraw-Hill Education.
39. 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 incurred by an acquirer over the fair value of the identifiable net assets and contingent
liabilities acquired.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Goodwill recognition

40. Far-flung Co Ltd purchases Local Co Ltd for the purchase consideration of:

Far-flung incurred legal fees of $6000 to complete the acquisition. Local Co Ltd had the following assets and liabilities at the time of the purchase

What is the value of goodwill, if any?

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

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Recognition of goodwill

8-11
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McGraw-Hill Education.
41. 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:

What is the value of goodwill, if any?

A. They are not required to recognise goodwill.

B. $35 000
C. $75 000
D. Surplus of $5000

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Recognition of goodwill

42. 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.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Impairment testing of intangible assets

43. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Amortisation of goodwill

8-12
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McGraw-Hill Education.
44. 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.

AACSB: Analytic
Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Opportunism and intangible asset recognition

45. 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.

AACSB: Analytic
Difficulty: Medium
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-08 Be able to describe some empirical research that has been undertaken on corporate accounting practices relating to research and
development.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Learning Objective: 08-11 Be able to evaluate whether the accounting standards pertaining to intangibles provide useful information for financial statement users.
Section: Accounting for goodwill
Topic: Users of financial statements and the amortisation of goodwill in Australia pre-IFRS

46. 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.

AACSB: Analytic
Difficulty: Medium
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Introduction to accounting for intangible assets
Section: What is the initial basis of measurement of intangible assets?
Section: Which intangible assets can be recognised and included in the statement of financial position?
Topic: Accounting for intangible assets under IFRS

8-13
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McGraw-Hill Education.
47. 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.

AACSB: Analytic
Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Goodwill and intangible recognition

48. 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. because 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.

AACSB: Analytic
Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Amortisation

49. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: FASB proposed treatment of goodwill

8-14
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McGraw-Hill Education.
50. Big Ltd has purchased 100% of Little Ltd for a cash payment of $800 000. The additional costs to Big Ltd to complete the purchase were $3000.
An extract from the statement of financial position for Little Ltd at the date of acquisition shows:

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 that has been acquired by Big Ltd?

A. $242 000
B. $344 000
C. $252 000
D. $102 000

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Estimation of purchased goodwill

8-15
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McGraw-Hill Education.
51. 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.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Learning Objective: 08-10 Be aware that the adoption of International Financial Reporting Standards (IFRSs) in Australia greatly reduced the amount of intangible
assets that Australian entities are permitted to recognise on their statements of financial position.
Section: Accounting for goodwill
Topic: Goodwill impairment testing under IFRS

52. Which of the following statement(s) in regard to goodwill is/are correct in accordance with AASB 136 Impairment of Assets?

A. An impairment loss must be recognised when the carrying amount of a cash-generating unit exceeds its recoverable amount.
B. An impairment loss recognised for goodwill shall not be reversed in a 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 statements are correct.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Recognition and measurement of goodwill

53. Which of the following statements in regard to goodwill is/are correct in accordance with AASB 136 Impairment of Assets?

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.
D. None of the given statements is correct.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Recognition and measurement of goodwill

54. 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.
AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Recognition and measurement of goodwill

8-16
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McGraw-Hill Education.
55. Which of the following intangible assets should be recognised in the statement of financial position?

A. Internally generated goodwill in excess of recoverable amount.

B. Licences with active market.
C. Purchased trademark.
D. Licences with active market and purchased trademark.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: What is the initial basis of measurement of intangible assets?
Section: Which intangible assets can be recognised and included in the statement of financial position?
Topic: Recognition of intangible assets

56. 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)

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Recognition and measurement of goodwill

8-17
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McGraw-Hill Education.
57. 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 accordance with AASB 136, what is the net effect of above goodwill accounts on the statement of comprehensive income and statement of
financial position of Broadbeach Ltd?

A.

B.

C.

D.

AACSB: Reflective thinking

Difficulty: Hard
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Impairment testing of goodwill and recognition in financial statements

58. 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:

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

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Estimation of goodwill carrying amount

8-18
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McGraw-Hill Education.
59. 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 20 years.
C. Internally generated brands are not recognised 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 recognised as intangible assets because expenditures in these assets are not distinguishable from the
cost of developing the business as a whole.

AACSB: Reflective thinking

Difficulty: Hard
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangible assets.
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-06 Know when and how to revalue an intangible asset.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: What is the initial basis of measurement of intangible assets?
Topic: Recognition and measurement of goodwill

60. 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.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-02 Understand when expenditure on intangible assets should be recognised as an asset.
Learning Objective: 08-03 Understand when expenditure on intangible assets must be expensed.
Section: Which intangible assets can be recognised and included in the statement of financial position?
Topic: Capitalisation of expenditure
Topic: Recognition and measurement of intangible assets

61. 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:

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

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Impairment testing cash-generating units

8-19
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McGraw-Hill Education.
62. 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:

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

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Impairment testing cash-generating units

63. 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:

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

AACSB: Reflective thinking

Difficulty: Hard
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Impairment testing cash-generating units

8-20
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McGraw-Hill Education.
64. 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:

In accordance with AASB 136 Impairment of Assets, what is the appropriate journal entry to recognise the impairment loss for Shelley Beach Ltd?

A.

B.

C.

D.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes.
Section: Accounting for goodwill
Topic: Impairment testing cash-generating units

65. An intangible asset with a finite useful life can be amortised when:

A. the asset has been purchased.

B. the asset is available for use.
C. the asset is derecognised.
D. None of the given answers is correct.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Section: General amortisation requirements for intangible assets
Topic: Amortisation of intangible assets

8-21
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McGraw-Hill Education.
66. An active market is defined in the standards as a market that has:

A. willing buyers and sellers.

B. prices are publicly available.
C. items traded are homogeneous.
D. all of the given answers are necessary.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-01 Understand what types of assets can be considered intangible assets and understand the differences between intangible and tangible assets.
Section: Revaluation of intangible assets
Topic: Active market

67. The gain or loss on the disposal of an intangible asset is determined as the difference between:

A. net proceeds from the disposal and the amortised amount.

B. net proceeds from the disposal and the recoverable amount.
C. net proceeds from the disposal and the carrying amount.
D. net proceeds from the disposal and the initial cost.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Section: Gain or loss on disposal of intangible assets
Topic: Gain or loss on disposal of intangible assets

68. Which of the following is not a directly attributable cost of research and development?

A. Costs of employee benefits arising from the generation of the intangible asset.
B. Fees to register a legal right.
C. Costs of materials consumed in generating the intangible asset.
D. All of the given answers are correct.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Research and development attributable costs

69. Which of the following elements of a business is a not a separately identifiable intangible asset?

A. Patents and licences.

B. Trademarks and brand names.
C. Research and development.
D. Established reputation and loyal customers.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairment testing and that this choice
will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Section: General amortisation requirements for intangible assets
Topic: General amortisation requirements for intangible assets

70. Which of the following is correct with respect to accounting treatment for research?

A. Always capitalised.
B. Always expensed.
C. Not recorded.
D. Is the same as development.

AACSB: Reflective thinking

Difficulty: Easy
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Research and development

8-22
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71. For Artarmon Ltd, which of the following would mean that development expenditure is not able to be capitalised?

A. Intention to complete the intangible asset and use as a prototype for full-scale production.
B. An available and willing market for the product on which the prototype is based.
C. All expenditure has been measured, with invoices and other supporting documents available.
D. Initial investigations suggest that it is not technically feasible to complete the prototype.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Research and development

72. For Milson Ltd, which of the following would mean that development expenditure is not able to be capitalised?

A. Intention to complete the intangible asset and use as a prototype for full-scale production.
B. At the moment, the appropriate financial resources are being sought for the prototype.
C. An available and willing market does not exist for the product on which the prototype is based.
D. All expenditure has been measured, with invoices and other supporting documents available.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Research and development

73. For Mosman Ltd, which of the following would allow development expenditure to be capitalised?

A. Intention to complete the intangible asset and use as a prototype for full-scale production.
B. At the moment the appropriate financial resources are being sought for the prototype.
C. There is not yet a market for the product on which the prototype is based.
D. At the moment the measurement of expenditure is not able to be undertaken.

AACSB: Reflective thinking

Difficulty: Medium
Learning Objective: 08-07 Understand how to account for research and development expenditure.
Section: Research and development
Topic: Research and development

8-23
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McGraw-Hill Education.
 Chapter 08 Testbank Summary
Category # of
Questi
ons
AACSB: Analytic 7
AACSB: Reflective thinking 66
Difficulty: Easy 40
Difficulty: Hard 4
Difficulty: Medium 29
Learning Objective: 08-01 Understand what types of assets can be considered intangible assets and understand the differences between i 4
ntangible and tangible assets.
Learning Objective: 08-02 Understand when expenditure on intangible assets should be recognised as an asset. 2
Learning Objective: 08-03 Understand when expenditure on intangible assets must be expensed. 1
Learning Objective: 08-04 Understand how to measure an intangible asset and be aware of the required disclosures in relation to intangi 9
ble assets.
Learning Objective: 08-05 Understand that intangible assets will need to either be systematically amortised or be the subject of impairm 16
ent testing and that this choice will depend upon whether the asset is expected to have a limited useful life or an indefinite life.
Learning Objective: 08-06 Know when and how to revalue an intangible asset. 5
Learning Objective: 08-07 Understand how to account for research and development expenditure. 19
Learning Objective: 08-08 Be able to describe some empirical research that has been undertaken on corporate accounting practices relati 1
ng to research and development.
Learning Objective: 08-09 Be able to define goodwill and explain how it is calculated for accounting purposes. 31
Learning Objective: 08-10 Be aware that the adoption of International Financial Reporting Standards (IFRSs) in Australia greatly reduc 2
ed the amount of intangible assets that Australian entities are permitted to recognise on their statements of financial position.
Learning Objective: 08-11 Be able to evaluate whether the accounting standards pertaining to intangibles provide useful information for 1
financial statement users.
Section: Accounting for goodwill 27
Section: Gain or loss on disposal of intangible assets 1
Section: General amortisation requirements for intangible assets 4
Section: Introduction to accounting for intangible assets 6
Section: Introduction to accounting for intangible assetsLO 8.1: Understand what types of assets can be considered intangible assets and 2
understand the differences between intangible and tangible assets.
Section: Is the way we account for intangible assets an improvement over what we did in Australia before the introduction of IFRS in 20 2
05?
Section: Required disclosures in relation to intangible assets 1
Section: Research and development 18
Section: Revaluation of intangible assets 3
Section: What is the initial basis of measurement of intangible assets? 6
Section: Which intangible assets can be recognised and included in the statement of financial position? 5
Section: Which intangible assets can be recognised and included in the statement of financial position?LO 8.1: Understand what types o 1
f assets can be considered intangible assets and understand the differences between intangible and tangible assets.
Topic: Accounting for intangible assets under IFRS 1
Topic: Active market 1
Topic: Amortisaion 1
Topic: Amortisation 1
Topic: Amortisation of development costs 1
Topic: Amortisation of development costs and expenseing 1
Topic: Amortisation of development costs and expensing research 1

8-24
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McGraw-Hill Education.
Topic: Amortisation of goodwill 1
Topic: Amortisation of intangible assets 2
Topic: Capitalisation 1
Topic: Capitalisation of expenditure 1
Topic: Capitalise or expense 1
Topic: Comparing US and Australia's treatment of research and development 1
Topic: Development activities 1
Topic: Development costs 1
Topic: Estimation of goodwill carrying amount 1
Topic: Estimation of purchased goodwill 1
Topic: Expenditure capitalisation into intangible asset 1
Topic: FASB proposed treatment of goodwill 1
Topic: Gain or loss on disposal of intangible assets 1
Topic: General amortisation requirements for intangible assets 1
Topic: Goodwill 3
Topic: Goodwill and CoCoA 1
Topic: Goodwill and intangible recognition 1
Topic: Goodwill impairment testing under IFRS 1
Topic: Goodwill recognition 1
Topic: Goodwill treatment 2
Topic: Identifiable intangible assets 1
Topic: Impairment testing cash-generating units 4
Topic: Impairment testing of goodwill and recognition in financial statements 1
Topic: Impairment testing of intangible assets 1
Topic: Intangible assets 1
Topic: Intangible assets recognition 1
Topic: Intangibles and international convergence 1
Topic: Internally generated assets 1
Topic: Internally generated identifiable intangible assets 1
Topic: Measurement of intangible assets 1
Topic: Measuring revalued intangible assets 1
Topic: Opportunism and intangible asset recognition 1
Topic: Recognition and measurement of goodwill 5
Topic: Recognition and measurement of intangible assets 1
Topic: Recognition criteria intangible assets 2
Topic: Recognition of goodwill 2
Topic: Recognition of intangible assets 2
Topic: Recording intangibles 1
Topic: Research and development 4
Topic: Research and development attributable costs 1
Topic: Research and development deferral 2
Topic: Revaluation method 1
Topic: Revaluation of intangible assets 3
Topic: Treatment of research and development 2
Topic: Treatment of research and development and managerial incentives 1
Topic: Users of financial statements and the amortisation of goodwill in Australia pre-IFRS 1

8-25
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McGraw-Hill Education.