lOMoARcPSD|5447560

Ch06 tb loftus 3e - textbook solution

Management Accounting (University of New South Wales)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Trinh Lê (pennyauditing@gmail.com)
 lOMoARcPSD|5447560

Testbank
to accompany

Financial reporting

3rd edition
by
Loftus et al.

Not for distribution. Instructors may assign selected questions in their LMS.

© John Wiley & Sons Australia, Ltd 2020

Downloaded by Trinh Lê (pennyauditing@gmail.com)

 lOMoARcPSD|5447560

Testbank to accompany Financial reporting 3e by Loftus et al.

Chapter 6: Intangible assets

Multiple Choice Questions

1. Which of the following assets meets the identifiability criteria for recognition as an
identifiable intangible asset that can be recorded as acquired in a business combination?

*a. Royalty agreements.

b. Customer base.
c. Continuing development programs.
d. Strong and favourable supplier relations.

Answer: a
Learning objective 5.2: outline the recognition criteria for initial recognition of property,
plant and equipment.

2. AASB 138 Intangibles requires that an asset meet which of the following criteria to be
classified as an identifiable intangible?

I. It arises from a contractual or legal right.

II. It is separable from the entity.
III. Its cost must be reliably measurable.
IV. Its fair value must be able to be reliably measured.

a. I or IV only.
*b. I or II only.
c. II or III only.
d. I or III only.

Answer: b
Learning objective 5.2: outline the recognition criteria for initial recognition of property,
plant and equipment.

3. Items such as market knowledge, effective advertising programs, fundraising capabilities

and trained staff are NOT regarded as assets because they:

a. are monetary items.

*b. are not controlled by the entity.
c. cannot be reliably measured.
d. are too difficult to manage.

Answer: b
Learning objective 5.2: outline the recognition criteria for initial recognition of property,
plant and equipment.

© John Wiley and Sons Australia, Ltd 2020 6.1

Downloaded by Trinh Lê (pennyauditing@gmail.com)

 lOMoARcPSD|5447560

Chapter 6: Intangible assets

Not for distribution in full. Instructors may assign selected questions in their LMS.

4. A key characteristic that separates intangible assets from assets such as property, plant
and equipment is:

a. length of useful life.

b. separability.
c. reliability.
*d. lack of physical substance.

Answer: d
Learning objective 5.2: outline the recognition criteria for initial recognition of property,
plant and equipment.

5. Which of the following assets is regarded as meeting the identifiability criteria for
recognition as an identifiable intangible asset that may be acquired in a business
combination?

*a. Newspaper mastheads.

b. Customer service capability.
c. Outstanding credit ratings.
d. Presence in geographic locations.

Answer: a
Learning objective 5.2: outline the recognition criteria for initial recognition of property,
plant and equipment.

6. The three key characteristics of intangible assets are:

I Expected future economic benefit

II Lack of physical substance
III Identifiable
IV Physical substance
V Non-monetary in nature

a. I, II and III
b. I, III, and IV
c. III, IV, and V
*d. II, III, and V

Answer: d
Learning objective 5.2: outline the recognition criteria for initial recognition of property,
plant and equipment.

© John Wiley and Sons Australia, Ltd 2020 6.2

Downloaded by Trinh Lê (pennyauditing@gmail.com)

 lOMoARcPSD|5447560

Testbank to accompany Financial reporting 3e by Loftus et al.

7. Goodwill is distinguished from other intangible assets due to which of the following
characteristic?

a. monetary nature.
b. physical substance.
*c. identifiability.
d. separability.

Answer: c
Learning objective 5.2: outline the recognition criteria for initial recognition of property,
plant and equipment.

8. AASB 138 Intangibles, requires goodwill to only be recognised as an asset if it:

a. is internally generated.
*b. is acquired as part of a business combination.
c. does not exceed its internally recorded cost.
d. arises as a result of creating new assets within the normal business operations.

Answer: b
Learning objective 5.2: outline the recognition criteria for initial recognition of property,
plant and equipment.

9. The recognition criteria that an asset must meet before it may be recognised and presented
in the financial statements includes:

*a. results from a past event.

b. having physical substance.
c. relevant to management decision making.
d. verifiability.

Answer: a
Learning objective 5.3: explain how to measure property, plant and equipment on initial
recognition.

10. AASB 138 Intangibles, defines the ‘research’ phase of the generation of an asset as:

a. the use of research findings to create a substantially improved product.

b. using knowledge to materially improve a manufacturing device.
c. the application of knowledge to a design for new production processes.
*d. original and planned investigation undertaken with the prospect of gaining new scientific
or technical knowledge or understanding.

Answer: d
Learning objective 5.3: explain how to measure property, plant and equipment on initial
recognition.

© John Wiley and Sons Australia, Ltd 2020 6.3

Downloaded by Trinh Lê (pennyauditing@gmail.com)

 lOMoARcPSD|5447560

Chapter 6: Intangible assets

Not for distribution in full. Instructors may assign selected questions in their LMS.

11. The original and planned investigation undertaken with the prospect of gaining new
knowledge is described as:

*a. research.
b. exploration.
c. development.
d. investigation.

Answer: a
Learning objective 5.3: explain how to measure property, plant and equipment on initial
recognition.

12. Jameson Limited was involved in a mining exploration business. It commenced a project
to design more efficient opal detecting equipment. The following expenditures occurred
during the financial year ended 30 June 2022: researcher’s salary $50 000; research
consumables $30 000; re-development of the detecting equipment $40 000; final
adjustments to the detecting equipment $12 500. The amount to be capitalised by this
company as an intangible asset, for the 2022 financial year, is:

a. $80 000
b. $90 000
c. $12 500
*d. $52 500

Answer: d
Learning objective 5.3: explain how to measure property, plant and equipment on initial
recognition.

13. Bankstown Limited was involved in a highly successful plastics manufacturing business.
It commenced a project to design a more efficient extrusion system for its plastic pipes.
The following outlays occurred: September: researcher salaries $30 000; October:
research materials $40 000; November: re-development of the extrusion plant $250 000;
December: final adjustments to the extrusion plant $25 000. The amount to be expensed
by Bankstown Limited at the end of the financial year, 31 December, is:

a. $30 000
*b. $70 000
c. $250 000
d. $275 000

Answer: b
Learning objective 5.3: explain how to measure property, plant and equipment on initial
recognition.

© John Wiley and Sons Australia, Ltd 2020 6.4

Downloaded by Trinh Lê (pennyauditing@gmail.com)

 lOMoARcPSD|5447560

Testbank to accompany Financial reporting 3e by Loftus et al.

14. Paragraph 63 of AASB 138 Intangibles, prohibits the recognition of the following
internally generated identifiable intangibles:

I II III IV
Brands No No Yes No

Mastheads No Yes Yes Yes

Publishing No No Yes Yes
titles
Customer No Yes Yes No
lists

a. I.
b. II.
*c. III.
d. IV.

Answer: c
Learning objective 5.3: explain how to measure property, plant and equipment on initial
recognition.

15. Unless acquired under a business combination, intangible assets must be initially
measured using which of the following measurement approaches?

a. Net present value.

*b. Cost.
c. Diminishing value.
d. Fair value.

Answer: b
Learning objective 5.4: explain the alternative ways in which property, plant and equipment
can be measured subsequent to initial recognition.

16. The cost of an intangible asset is comprised of the fair value of the consideration:

a. plus indirect costs.

b. less directly attributable costs.
*c. plus directly attributable costs.
d. less legal costs incurred in the purchase.

Answer: c
Learning objective 5.4: explain the alternative ways in which property, plant and equipment
can be measured subsequent to initial recognition.

© John Wiley and Sons Australia, Ltd 2020 6.5

Downloaded by Trinh Lê (pennyauditing@gmail.com)

 lOMoARcPSD|5447560

Chapter 6: Intangible assets

Not for distribution in full. Instructors may assign selected questions in their LMS.

17. The measurement of fair value is determined in accordance with AASB 13 Fair Value
Measurement. AASB 13 defines fair value as one that has all of the following conditions:

I II III IV
The price that would be received to sell an asset or paid to Yes Yes No Yes
transfer a liability
Is an orderly transaction between market participants No Yes No Yes
Based on the measurement date. Yes Yes Yes No

a. I.
*b. II.
c. III.
d. IV.

Answer: b
Learning objective 5.4: explain the alternative ways in which property, plant and equipment
can be measured subsequent to initial recognition.

18. 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 cost?

a. The initial cost of the asset given up.

*b. The fair value of the asset given up.
c. The replacement value of the asset received.
d. The carrying amount of the asset received.

Answer: b
Learning objective 5.4: explain the alternative ways in which property, plant and equipment
can be measured subsequent to initial recognition.

19. Under the revaluation method of measuring an intangible, the asset is carried at fair value
and subject to charges for:

a. interest.
b. inflation.
c. improvements.
*d. amortisation and impairment.

Answer: d
Learning objective 5.5: explain the cost model of measurement and understand the nature
and calculation of depreciation.

© John Wiley and Sons Australia, Ltd 2020 6.6

Downloaded by Trinh Lê (pennyauditing@gmail.com)

 lOMoARcPSD|5447560

Testbank to accompany Financial reporting 3e by Loftus et al.

20. Cost incurred on intangible assets subsequent to initial expenditure are:

a. recognised directly in the revaluation reserve account.

b. transferred to the retained earnings account.
*c. expensed immediately.
d. capitalised.

Answer: c
Learning objective 5.5: explain the cost model of measurement and understand the nature
and calculation of depreciation.

21. AASB 138 Intangibles, requires that an intangible asset with an indefinite life:

a. be amortised across its useful life.

b. be amortised across a period of no greater than 10 years.
c. not be amortised in periods when it has been properly maintained.
*d. not be subject to amortisation charges.

Answer: d
Learning objective 5.5: explain the cost model of measurement and understand the nature
and calculation of depreciation.

22. Under AASB 138 Intangibles, an intangible asset with an finite useful life is:

a. not able to be recognised by an entity as an asset.

b. not subject to annual amortisation charges.
c. amortised using the straight-line method over a period of no more than 20 years.
*d. amortised systematically over its useful life.

Answer: d
Learning objective 5.5: explain the cost model of measurement and understand the nature
and calculation of depreciation.

23. AASB 138 Intangibles requires which of the following items to be disclosed in relation to
intangibles?

a. Whether the life of the intangible is finite or indefinite.

b. The amortisation method used for intangibles with a finite life.
c. A reconciliation of the beginning and ending carrying amounts for the reporting period.
*d. All of the options are required disclosures.

Answer: d
Learning objective 5.7: account for derecognition.

© John Wiley and Sons Australia, Ltd 2020 6.7

Downloaded by Trinh Lê (pennyauditing@gmail.com)

 lOMoARcPSD|5447560

Chapter 6: Intangible assets

Not for distribution in full. Instructors may assign selected questions in their LMS.

24. Which of the following statements is correct?

*a. Separate disclosures are required for internally generated intangibles.

b. AASB 138 requires disclosures about an entity’s intangible assets to be made on an
asset by asset basis.
c. Disclosures about the useful lives of intangibles are required with explanations being
required where assets are assessed to have finite useful lives.
d. Where the cost model is used, specific disclosures are required including assumptions
made on estimating fair values.

Answer: a
Learning objective 5.7: account for derecognition.

© John Wiley and Sons Australia, Ltd 2020 6.8

Downloaded by Trinh Lê (pennyauditing@gmail.com)