1.

An intangible asset (other than goodwill) is:

a. An identifiable asset without physical substance.
b. A non-monetary asset without physical substance.
c. An identifiable non-monetary asset without physical substance.

2. An intangible asset is identifiable when:

a. it is separable (i.e. capable of being separated or divided from the entity and sold,
transferred, licensed, rented or exchanged, either individually or together with a
related contract, asset or liability).
b. It arises from contractual or other legal rights, regardless of whether those rights
are transferable or separable from the entity or from other rights and obligations.
c. either (a) or (b) applies.
d. none of the above.

3. Internally generated goodwill:

a. Is recognised as an asset.
b. Is not recognised as an asset.
c. Is recognised as an asset only if it respects some criterions defined into IAS 38.

4. An intangible asset with an indefinite useful life shall be amortized.

a. True
b. False

5. An entity shall choose either the cost model or the revaluation model as its accounting policy
for intangible assets.
a. True
b. False

Exercises

Exercise 1 – R&D costs

Well Company is active in the production and sale of mechanical components. Well Company
has a division specialized in R&D: the team receives a remuneration for € 50,000 per month; in
addition, fixed manufacturing costs € 1,000 per month are allocated on R&D division on the
basis of cost accounting.
You work in the general accounting team of Well Company and you were preparing the
financial statements with the help of a colleague.
Your colleague tells you that on the basis of its audit, after talking with the manager of the
R&D costs incurred from 15 October onwards can be considered as development activities in
accordance with IAS 38.

Required:

Prepare accounting entries necessary to prepare the budget.

Exercise 2

Acquirers USA’s purchase of Target Firm

Acquirer USA ($ thousands)

Assets Liabilities & Equity
Cash 200 Current Liabilities 50
AR 50 Long-Term Debt 250
Inventory 100 Stockholders’ Equity 300
PPE, net 250
Total Assets 600 Total Liabilities & Equity 600

Target firm ($ thousands)

Fair
As As Fair
Assets value Liabilities & Equity
reported reported values
s
Cash 15 15 Current Liabilities 35 35
AR 25 20 Long-Term Debt 105 70
Inventory 65 60 Stockholders’ Equity 75
PPE, net 110 125 (6,000 shares
outstanding)
Total 215 220 Total Liabilities & 215 105
Assets Equity

 The stock of Target Firm (balance sheet and fair values shown above) is currently trading at
$20/share. Acquirers USA purchases 100 percent of Target for $30/share in cash, for a total
cash payment of $180,000 (30*6,000).

1. How much goodwill will Acquirers USA record on its books?