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COVERAGE:
PAS 38: Intangible asset
IFRIC 12: Infrastructure asset of concession arrangement
Other Topics: Research and development costs
Direction: Read and select the best answer for the following questions.

1. PAS 38 defines it as an identifiable nonmonetary asset without physical substance.

a. Property, plant and equipment
b. Intangible asset
c. Investment property
d. Inventory

2. The essential criteria of intangible assets are as follows, except

a. Identifiability
b. Control
c. Future economic benefits
d. Ownership

3. When is an intangible asset considered identifiable?

I. When it is separable, meaning, the asset is capable of being separated from the entity, sold, transferred, licensed, rented or
exchanged individually or together with a related contract, asset or liability, regardless of whether the entity intends to do so.
II. When it arises from contractual or other legal rights, regardless of whether these rights are transferable or separable from the entity or
from other rights and obligations.
a. Either I or II
b. Neither I nor II
c. I only
d. II only

4. Intangible assets shall be measured initially at

a. Fair value
b. Cost
c. Present value
d. Net realizable value

5. Intangible assets are classified as

a. Current assets
b. Noncurrent assets
c. Current liabilities
d. Noncurrent liabilities

6. What is the recognition principle of intangible assets?

a. When an entity becomes a party to the contract.
b. When an entity controls the intangible asset.
c. When it is probable the future economic benefits attributable to the asset will flow to the entity and the cost of the asset can be
measured reliability.
d. When the intangible asset has no physical substance.

7. The following costs are excluded from the costs of intangible assets, except
a. Cost of introducing a new product or service, including costs of advertising and promotional activities
b. Costs of conducting business in a new location or with a new class of customer, including costs of staff training
c. Costs of registering intangible assets
d. Costs incurred while an asset capable of operating in a manner intended by management has hey to be brought into use.

8. If an intangible asset is acquired in a business combination, the cost is

a. Book value at the date of acquisition
b. Present value at the date of acquisition
c. Fair value at the date of acquisition
d. Current cost at the date of acquisition
e.

9. The following costs are components of the costs of internally generated intangible assets, except
 a. Cost of materials and services used or consumed in generating the intangible asset.
b. Fees to register a legal right
c. Cost of employee benefits arising from the generation of the intangible asset.
d. Initial operating losses

10. The following expenditures are not components of the cost of an internally generated intangible assets, except
a. Selling, administrative and general overhead
b. Amortization of patents and licenses that are used to generate the intangible asset.
c. Clearly identified inefficiencies incurred before an asset achieves planned performance.
d. Expenditures on training staff to operate the asset.

11. The following are internally generated intangible assets which shall not be capitalized but shall be expensed as incurred, except
a. Customer lists and publishing titles
b. Brands and mastheads
c. Patent
d. Goodwill

12. As a general rule, what is the treatment of subsequent expenditures on an intangible asset?
a. Capitalize it as cost of intangible asset.
b. Capitalize it as goodwill.
c. Recognize it prepaid asset.
d. Expense it as incurred.

13. The following are examples of identifiable intangible assets, except one which is the most intangible of all intangibles
a. Patent
b. Goodwill
c. Franchise
d. Copyright

14. What is the subsequent measurement of an intangible asset?

a. Fair value under the cost model
b. Cost less accumulated amortization and accumulated impairment under the cost model and revalued amount less any
subsequent amortization and any subsequent impairment under the revaluation model.
c. Recoverable amount under revaluation model
d. Present value under cost model

15. The following are the rules concerning the amortization and impairment of intangible assets, except
a. Intangible assets with limited life or finite life are amortized over their useful life or legal life whichever is longer.
b. Intangible assets with indefinite life are not amortized.
c. Intangible assets with indefinite life are tested for impairment at least annually whenever there is an indication that the intangible
asset may be impaired.
d. An impairment loss on an intangible asset is recognized if the recoverable amount is less than the carrying amount.

16. It refers to the systematic allocation of the cost or revalued amount of an intangible asset.
a. Amortization
b. Depreciation
c. Impairment
d. Depletion

17. The method of amortization of an intangible asset shall reflect the pattern in which the future economic benefits from the asset are
expected to be consumed by the entity. However, if such pattern cannot be determined reliably, what method shall be used?
a. Declining balance
b. Unit method
c. Straight line method
d. SYD method

18. The following factors are considered in determining the useful life of an intangible asset, except
a. Expected action of competitors or potential competitors
b. Residual value of an intangible asset
c. Typical product life cycle for the asset
d. Period of control over the asset and any similar or legal limits
19. The residual value of an intangible asset shall be presumed to be zero unless
I. A third party is committed to but the intangible asset at the end of its useful life.
II. There is an active market for the intangible asset so that its expected residual value can be measured and it is probable that there
would be a market for the asset at the end of its useful life.
a. I only
b. II only
c. Either I or II
d. Neither I nor II

20. Under US-GAAP, what is the classification of patent?

a. Technology-based
b. Artistic-based
c. Market-based
d. Customer-based
e. Contract-based

21. A patent is an exclusive right granted by the government to an inventor enabling him to control the manufacture, sale or other use of his
invention for a specified period of time. What is the legal life of patent under R.A. No. 8293?
a. 10 years from the date of application
b. 17 yeas from the date of application
c. 15 years from the date of application
d. 20 years from the date of application

22. The following costs shall be included in the costs of internally generated patent, except
a. Licensing and other related fees in securing the patent rights
b. Engineering and consulting costs to develop the patent after the patent application has been made
c. Cost of drawing for patent application
d. Legal fees and other costs of successfully prosecuting or defending a patent

23. The following rules shall be observed with regard to amortization of patent, except
a. The original cost shall be amortized over the legal life or useful life whichever is shorter.
b. If a competitive patent is acquired to protect an original patent, the cost of the competitive patent shall be amortized over the
remaining life of the old patent.
c. If a related patent is acquired in order to extend the life of the old patent, the cost of the related patent and any unamortized cost
of the old patent shall be amortized over the extended life.
d. If a related patent is acquired but there is no extension of life of old patent, the new patent shall be amortized over its own life
and the cost of the old patent is to be amortized over the life of new patent.

24. It is an exclusive right granted by the government to the author, composer or artist enabling him to publish, sell or otherwise benefit from
his literary, musical or artistic work.
a. Patent
b. Franchise
c. Copyright
d. Trademark

25. What is the legal life of a copyright in the Philippines?

a. Life of author plus 50 years after death
b. Life of author
c. 50 years
d. Life of author plus 25 years after death

26. The following costs shall be included in the cost of franchise, except
a. Initial franchise fee
b. Legal fees in connection with acquisition of franchise
c. Directly attributable costs in connection with acquisition of franchise
d. Periodic or contingent franchise fee

27. It refers to the right acquired by the lessee by virtue of a contract of lease to use the specific property owned by the lessor for a definite
period of time in consideration for a certain sum of money.
a. Leasehold right
b. Franchise
c. Patent
d. Trademark
28. Leasehold improvements shall be depreciated over the
a. Life of the leasehold improvement
b. Lease term
c. Life of the leasehold improvement or lease term whichever is shorter
d. Life of the leasehold improvement or lease term whichever is longer

29. Trademark is a symbol, sign, slogan or name used to mark a product to distinguish it from other products. What is the useful life or legal
life of trademark?
a. 10 years
b. 50 years
c. Indefinite
d. 25 years

30. It arises when earnings exceed normal earnings by reason of good name, capable staff and personnel, high credit standing, reputation for
fair dealings, reputation for superior products, favorable location and list of regular customers.
a. Goodwill
b. Patent
c. Franchise
d. Leasehold

31. The following goodwill can be recognized as an asset, except

a. Goodwill from business combination
b. Purchased goodwill
c. Developed or internal goodwill
d. None of the above

32. PFRS 3, par. 34, provides that negative goodwill shall be recognized
a. As a liability.
b. Directly to retained earnings
c. In profit or loss as gain bargain purchase
d. By crediting to share premium

33. Organization cost represents cost incurred in forming or organizing a corporation. PAS 38 provides that organization costs shall be
a. Expensed as incurred
b. Capitalized as intangible asset
c. Credited to share premium
d. Capitalized as an item of PPE

34. Stock issuance costs shall be recorded by

a. Debiting directly to retained earnings
b. Debiting to share premium
c. Debiting to expense
d. Debiting to intangible asset

35. Which of the following statements is correct?

I. Research is original and planned investigation undertaken with the prospect of gaining scientific or technical knowledge and
understanding.
II. Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially
improved material, device, product, process, system or service, prior to commencement of commercial production.
a. I only
b. II only
c. Neither I nor II
d. Both I and II

36. Which of the following can be capitalized as an intangible asset if it meets the criteria for capitalization?
a. Research cost
b. Development cost
c. Research and development cost
d. Organization cost

37. The following are examples of research activities, except

 a. Laboratory research aimed at obtaining or discovering new knowledge.
b. Design of tools, jigs, models, and dies involving new technology.
c. Conceptual formulation and design of possible product or process alternative.
d. Testing in search for product or process alternative.

38. The following are development activities, except

a. Design, construction and testing of preproduction prototypes.
b. Design, construction and operation of a pilot plant that is not of a scale economically feasible to the entity for commercial
production.
c. Searching for application of research findings and other knowledge.
d. Design, construction and testing of a chosen alternative for a new or improved product or process.

39. The following activities are not considered part of research and development, except
a. Engineering follow though in an early phase of commercial production.
b. Quality control during commercial production including routine testing.
c. Testing in search for product or process alternative.
d. Routine design of tools, jigs, models and others.

40. When should capitalization for internally developed computer software begin?
a. When costs in creating a software product are incurred.
b. When costs are incurred to actually produce the software from masters and package the software for sale.
c. When technical feasibility has been established for a product.
d. When the research begins.

41. When is a computer software considered property, plant and equipment?

a. When it is purchase for resale.
b. When it is purchase for internal administration of the company.
c. When it is not an integral part of the related hardware.
d. When it is an integral part of computer-controlled machine tool that cannot operate without the specific hardware.

42. Under SIC 32, web site development costs incurred for the purpose of promoting an advertising an entity’s products and services should
be
a. Capitalized as an intangible asset
b. Capitalized as an inventory
c. Expensed as incurred
d. Capitalized as an item of property, plant and equipment

43. It refers to an arrangement between a private sector entity and public sector entity whereby the private sector entity shall prov ide services
in order that the public could access to major economic and social facilities.
a. Public contract
b. Service concession
c. Government owned and controlled corporation
d. Public bidding

44. Who are the two parties in a service concession arrangement?

I. Concession operator – a private sector entity.
II. Grantor – a public sector entity which is the party that grants the service concession arrangement.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

45. Under IFRIC 12, the infrastructure asset of a service concession agreement shall be classified as
I. Financial asset when the operator has a guaranteed contractual right to receive a specified amount of cash over the life of the
arrangement.
II. Intangible asset when the operator has received a right, not a license, to charge users for the public service and the revenue
receivable is not agreed in advance but is dependent on the use of the asset by the public.
a. I only
b. II only
c. Either I or II
d. Neither I nor II