AUDIT CONCEPTS & APPLICATIONS1

Module 7_Investment Property

LECTURE NOTES

Nature of investment property

Investment property is property (land or a building—or part of a building—or both)
held (by the owner or by the lessee under a finance lease) to earn rentals or for
capital appreciation or both, rather than for:
(a) use in the production or supply of goods or services or for administrative
purposes; or
(b) sale in the ordinary course of business.

Owner-occupied property is property held (by the owner or by the lessee under a
finance lease) for use in the production or supply of goods or services or for
administrative purposes.

Examples of investment property:

• Land held for long-term capital appreciation
• Land held for undetermined future use
• Building leased out under an operating lease
• Vacant building held to be leased out under an operating lease
• Property that is being constructed or developed for use as an investment
property
• Existing investment property that is being redeveloped for continuing use as
investment property

The following are not investment property and, therefore, are outside the scope of
PAS 40:
• property held for use in the production or supply of goods or services or for
administrative purposes;
• property held for sale in the ordinary course of business or in the process of
construction of development for such sale (PAS 2 - Inventories);
• property being constructed or developed on behalf of third parties (PAS - 11
Construction Contracts);
• owner-occupied property (PAS - 16 Property, Plant and Equipment), including
property held for future use as owner-occupied property, property held for
future development and subsequent use as owner-occupied property, property
occupied by employees and owner-occupied property awaiting disposal; and
• property leased to another entity under a finance lease.

Other Classification Issues

Property held under an operating lease

A property interest that is held by a lessee under an operating lease may be

classified and accounted for as investment property provided that:
• the rest of the definition of investment property is met;
• the operating lease is accounted for as if it were a finance lease in accordance
with PAS 17 Leases; and
• the lessee uses the fair value model set out in this Standard for the asset
recognized.

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An entity may make the foregoing classification on a property-by-property basis.

Partial own use

If the owner uses part of the property for its own use, and part to earn rentals or
for capital appreciation, and the portions can be sold or leased out separately, they
are accounted for separately. Therefore the part that is rented out is investment
property. If the portions cannot be sold or leased out separately, the property is
investment property only if the owner-occupied portion is insignificant.

Ancillary services
If the enterprise provides ancillary services to the occupants of a property held by
the enterprise, the appropriateness of classification as investment property is
determined by the significance of the services provided. If those services are a
relatively insignificant component of the arrangement as a whole (for instance, the
building owner supplies security and maintenance services to the lessees), then the
enterprise may treat the property as investment property. Where the services
provided are more significant (such as in the case of an owner-managed hotel), the
property should be classified as owner-occupied.

Intracompany rentals
Property rented to a parent, subsidiary, or fellow subsidiary is not investment
property in consolidated financial statements that include both the lessor and the
lessee, because the property is owner-occupied from the perspective of the group.
However, such property could qualify as investment property in the separate
financial statements of the lessor, if the definition of investment property is
otherwise met.

Recognition
Investment property should be recognized as an asset when it is probable that the
future economic benefits that are associated with the property will flow to the
enterprise, and the cost of the property can be reliably measured.

Initial measurement
Investment property is initially measured at cost, including transaction costs (e.g.
professional fees for legal services and property transfer taxes). Such cost should
not include start-up costs, abnormal waste, or initial operating losses incurred
before the investment property achieves the planned level of occupancy.

Cost is the amount of cash or cash equivalents paid or the fair value of other
consideration given to acquire an asset at the time of its acquisition or construction
or, where applicable, the amount attributed to that asset when initially recognized
in accordance with the specific requirements of other PFRS, eg PFRS 2 Share-based
Payment.

Fair value is the amount for which an asset could be exchanged between
knowledgeable, willing parties in an arm’s length transaction.

Measurement subsequent to initial recognition

PAS 40 permits enterprises to choose between:
• a fair value model; and cost model.

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One method must be adopted for all of an entity's investment property. Change is
permitted only if this results in a more appropriate presentation. PAS 40 notes that
this is highly unlikely for a change from a fair value model to a cost model.

Fair value model

• Investment property is remeasured at fair value. Gains or losses arising from
changes in the fair value of investment property must be included in net profit or
loss for the period in which it arises.
• There is a rebuttable presumption that the enterprise will be able to determine
the fair value of an investment property reliably on a continuing basis. However,
if, in exceptional circumstances, an entity follows the fair value model but at
acquisition concludes that a property's fair value is not expected to be reliably
measurable on a continuing basis, the property is accounted for in accordance
with the benchmark treatment under PAS 16, Property, Plant and Equipment
(cost less accumulated depreciation less accumulated impairment losses).
• Where a property has previously been measured at fair value, it should continue
to be measured at fair value until disposal, even if comparable market
transactions become less frequent or market prices become less readily
available.

Cost Model
After initial recognition, investment property is accounted for in accordance with the
cost model as set out in PAS 16, Property, Plant and Equipment – cost less
accumulated depreciation and less accumulated impairment losses.

Transfers to or from Investment Property Classification

Transfers to, or from, investment property should only be made when there is a
change in use, evidenced by:
• commencement of owner-occupation (transfer from investment property to
owner-occupied property);
• commencement of development with a view to sale (transfer from investment
property to inventories);
• end of owner-occupation (transfer from owner-occupied property to investment
property);
• commencement of an operating lease to another party (transfer from
inventories to investment property); or

When an entity decides to sell an investment property without development, the

property is not reclassified as investment property but is dealt with as investment
property until it is disposed of.

The following rules apply for accounting for transfers between categories:
• for transfer from investment property carried at fair value to owner-occupied
property or inventories, the fair value at the change of use is the ‘cost’ of the
property under its new classification;
• for transfer from owner-occupied property to investment property carried at fair
value, PAS 16 should be applied up to the date of reclassification. Any
difference arising between the carrying amount Under PAS 16 at that date and
the fair value is dealt with as a revaluation under PAS 16; and

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 • for transfer from inventories to investment property at fair value, any difference
between the fair value at the date of transfer and it previous carrying amount
should be recognized in net profit or loss for the period.

When an entity uses the cost model for investment property, transfers between
categories do not change the carrying amount of the property transferred, and they
do not change the cost of the property for measurement or disclosure purposes.

Disposal
An investment property should be derecognized on disposal or when the investment
property is permanently withdrawn from use and no future economic benefits are
expected from its disposal. The gain or loss on disposal should be calculated as the
difference between the net disposal proceeds and the carrying amount of the asset
and should be recognized as income or expense in the income statement.
Compensation from third parties is recognized when it becomes receivable.

Disclosure
Both Fair Value Model and Cost Model
• whether the fair value or the cost model is used
• if the fair value model is used, whether property interest held under operating
leases are classified and accounted for as investment property
• if classification is difficult, the criteria to distinguish investment property from
owner-occupied property and from property held for sale
• the methods and significant assumptions applied in determining the fair value of
investment property
• the extent to which the fair value of investment property is based on a valuation
by a qualified independent valuer; if there has been no such valuation, that fact
must be disclosed
• the amount recognized in profit or loss for:
o rental income from investment property
o direct operating expenses (including repairs and maintenance) arising from
investment property that generated rental income during the period
o direct operating expenses (including repairs and maintenance) arising from
investment property that did not generate rental income during the period
o the cumulative change in fair value recognized in profit or loss on a sale from
a pool of assets in which the cost model is used into a pool in which the fair
value model is used.
• Restrictions on the realizability of investment property or the remittance of
income and proceeds of disposal
• Contractual obligations to purchase, construct, or develop investment property or
for repairs, maintenance or enhancements

Additional Disclosures for the Fair Value Model

• a reconciliation between the carrying amounts of investment property at the
beginning and end of the period, showing additions, disposals, fair value
adjustments, net foreign exchange differences, transfers to and from inventories
and owner-occupied property, and other changes
• significant adjustments to an outside valuation (if any)
• if an entity that otherwise uses the fair value model measures an item of
investment property using the cost model, certain additional disclosures are
required

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Additional Disclosures for the Cost Model
• the depreciation method used
• the useful lives or the depreciation rates used
• the gross carrying amount and the accumulated depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period
• a reconciliation of the carrying amount of investment property at the beginning
and end of the period, showing additions, disposals, depreciation, impairment
recognized or reversed, foreign exchange differences, transfers to and from
inventories and owner-occupied property, and other changes
• the fair value of investment property. If the fair value of an item of investment
property cannot be measured reliably, additional disclosures are required,
including if possible, the range of estimates within which fair value is highly likely
to lie
- done -

LEARNING EXERCISES

MULTIPLE CHOICE QUESTIONS PROBLEMS

1. Solano Company is considering the appropriate classification of the following
items:
Land held for long-term capital appreciation P15,000,000
Land held for undecided future use 30,000,000
Building leased out under an operating lease 75,000,000
Building leased out under a finance lease 45,000,000
Vacant building held to be leased out under an operating lease 8,000,000
Property held for use in the production or supply of goods or
services 6,000,000
Property held for administrative purposes 9,000,000
Property held for sale in the ordinary course of business 2,000,000
Property held in the process of construction or development for
sale 3,000,000
Property being constructed or developed on behalf of third parties 12,000,000
Property held for future use as owner-occupied property 4,000,000
Property held for future development and subsequent use as
owner-occupied property 4,400,000
Property occupied by employees 3,600,000
Owner-occupied property awaiting disposal 750,000
Property that is being constructed or developed for use as an
investment property 12,000,000
Existing investment property that is being redeveloped for
continuing use as investment property 24,000,000
Building held for administrative purposes and leased out under
operating lease (60% is for administrative purposes) 15,000,000
Building leased out under an operating lease (the entity supplies
security and maintenance services to the lessees) 30,000,000

How much is the total amount that would normally be reported as investment
property?
a. P200 million b. P188 million c. P170 million d. P158 million

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2. Quirino, Inc. and its subsidiaries have provided you, their PFRS specialist, with a
list of the properties they own:
• Land held by Quirino, Inc. for undetermined future use, P5,000,000.
• A vacant building owned by Quirino, Inc. and to be leased out under an
operating lease, P20,000,000.
• Property held by a subsidiary of Quirino, Inc., a real estate firm, in the
ordinary course of its business, P30,000,000.
• Property held by Quirino, Inc. for use in production, P1,000,000.
• A hotel owned by Sugo, Inc., a subsidiary of Quirino, Inc., and for which Sugo,
Inc. provides security services for its guests’ belongings, P50,000,000.
• A building owned by Quirino, Inc. being leased out to Status, Inc, a subsidiary
of Quirino, Inc., P20,000,000.

How much will be reported as investment properties in Quirino, Inc. and its
subsidiaries consolidated financial statements?
a. P75,000,000 b. P25,000,000 c. P95,000,000 d. P45,000,000

3. The Kuala Lumpur Company’s accounting policy with respect to investment

properties is to measure them at fair value at the end of each reporting period.
One of its investment property was measured at P800,000 on 31 December
2016.

The property had been acquired 1 January 2016 for a total of P760,000, made up
of P690,000 paid to the vendor, P30,000 paid to local authority as a property
transfer tax and P40,000 paid to professional advisers.

In accordance with PAS40 Investment property, the amount of the gain to be

recognized in profit or loss in the year ended 31 December 2016 in respect of the
investment property is
a. P40,000 b. P70,000 c. P80,000 d. P110,000

4. The Kathmandu Company acquired a building on 1 January 2016 for P900,000.

At that date the building had a useful life of 30 years. At 31 December 2016 the
fair value of the building was P960,000. The building was classified as an
investment property and accounted for under the cost model.

According to PAS40 Investment property what amounts should be carried in the

statement of financial position (SFP) and recognized in profit or loss (P/L)?

Carrying amount in SFP Recognized in P/L

a. P870,000 Nil
b. P900,000 Nil
c. P960,000 Gain of P60,000
d. P870,000 Expense of P30,000

5. The Conehead Company purchased an investment property on 1 January 2013

for a cost P220,000. The property had a useful life of 40 years and at 31
December 2015 had a fair value of P300,000. On 1 January 2016 the property
was sold for net proceed of P290,000. Conehead uses the cost model to account
for investment properties.

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 What is the gain or loss to be recognized in profit or loss for the year ended 31
December 2016 regarding the disposal of the property?
a. P86,500 gain b. P81,000 gain c. P10,000 loss d. P92,000 gain

6. Diffun, Inc. owns a building purchased on January 1, 2012 for P50 million. The
building was used as the company’s head office. The building has an estimated
useful life of 25 years. In 2016, the company transferred its head office and
decided to lease out the old building. Tenants began occupying the old building
by the end of 2016. On December 31, 2016, the company reclassified the
building as investment property to be carried under the cost model. The fair
value on the date of reclassification was P42 million.

How much should be recognized in the 2016 profit or loss as a result of the
transfer from owner-occupied to investment property?
a. P8,000,000 b. P2,000,000 c. P500,000 d. P0

Use the following information for the next two questions.

Cute Corporation owns the following properties at January 2016:

Property A
An office building used by Cute for administrative purposes with a depreciated
historical cost of P2 million. At 1 January 2016 it had a remaining life of 20 years.
After a re-organization on 1 July 2016, the property was leased to a third party and
reclassified as an investment property applying Cute’s policy of the fair value
model. An independent valuer assessed the property to have a fair value of P2.3
million at 1 July 2016, which had risen to P2.34 million at December 2016.

Property B
Another office building sub-leased to a subsidiary of Cute. At 1 January 2016, it had
a fair value of P1.5 million which had risen to P1.65 million at 31 December 2016.
At 1 January 2016 it had a remaining life of 15 years.

Determine the amounts that should be recognized by the entity in its separate
financial statements in respect of these properties for the year ended December 31,
2016 for the following:
7. Net amount in profit or loss
a. P540,000 b. P490,000 c. P190,000 d. P140,000

8. Net amount in other comprehensive income

a. P500,000 b. P350,000 c. P300,000 d. P0
=end of learning exercises=

FINAL TERM QUIZ 2

Submit Answers in Google Form

1. PAS 40 (Investment Property) applies to:

a. Measurement in a lessee’s financial statements of investment property
interests held under a lease accounted for as a finance lease
b. Measurement in a lessee’s financial statements of property interests held
under a lease accounted for as an operating lease
c. Recognition of lease income from investment property
d. Disclosure about and operating leases.

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2. Investment properties are
a. Identifiable non-monetary assets without physical substance.
b. Properties held to earn rentals or for capital appreciation or both.
c. Assets held for sale in the ordinary course of business.
d. Tangible items that are held for use in the production or supply of goods or
services, for rental to others, or for administrative purposes; and are expected
to be used during more than one period.

3. Which of the following would be classified as investment property?

I Building held for sale in the ordinary course of business
II. Building held to earn rentals under operating leases.
III. Land held for capital appreciation.
IV. Land held for undetermined future use
V. Equipment held to earn rentals under operating leases.
a. I, II, III, IV and V c. III, IV and V
b. II, III, IV and V d. II, III and IV

4. If an entity has not determined that it will use the land as owner-occupied
property or for short-term sale in the ordinary course of business, the land is
regarded as
a. Owner-occupied.
b. Held for sale.
c. Held for capital appreciation.
d. Any of the above.

5. Which of the following is (are) correct if the owner uses part of the property for
its own use, and part to earn rentals or for capital appreciation?
a. If the portions can be sold or leased out separately, they are accounted for
separately.
b. If the portions can be sold or leased out separately, the part that is rented out
is investment property.
c. If the portions cannot be sold or leased out separately, the property is
investment property only if the owner-occupied portion is insignificant.
d. All of the above

6. Which of the following is (are) incorrect if the entity provides ancillary services to
the occupants of a property held by the enterprise?
a. The appropriateness of classification as investment property is determined by
the significance of the services provided.
b. If the services provided are relatively insignificant component of the
arrangement as a whole (for instance, the building owner supplies security
and maintenance services to the lessees), then the entity may treat the
property as investment property.
c. Where the services provided are more significant (such as in the case of an
owner-managed hotel), the property should be classified as investment
property.
d. All of the above

7. An investment property should be measured initially at

a. Cost
b. Cost less accumulated impairment losses
c. Depreciated cost less accumulated impairment losses

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 d. Fair value less accumulated impediment losses

8. Depreciation, if applicable, and impairment losses are recognized under

Cost Model Fair Value Model
a. Yes Yes
b. Yes No
c. No Yes
d. No No

9. A gain arising from a change in the fair value of an investment property for which
an entity has opted to use the fair value model is recognized in
a. Profit or loss for the year
b. General reserve in the shareholders’ equity
c. Valuation reserve in the shareholders’ equity
d. None of the above

10. Which statement is incorrect in determining the carrying amount of

investment property under the fair value model?
a. Equipment such as lifts or air-conditioning is often an integral part of a
building and is generally included in the fair value of the investment property,
rather than recognized separately as property, plant and equipment.
b. If an office is leased on a furnished basis, the fair value of the office generally
includes the fair value of the furniture, because the rental income relates to
the furnished office.
c. The fair value of investment property includes prepaid or accrued operating
lease income.
d. The fair value of investment property held under a lease reflects expected
cash flows (including contingent rent that is expected to become payable).

11. Which statement is correct regarding investment property?

a. Entities should determine the fair value of investment property.
b. Entities should use the fair value model.
c. Entities should use the cost model.
d. Entities should determine the fair value of investment property on the basis of
a valuation by an independent valuer who holds a recognized and relevant
professional qualification.

12. Under PAS 40, in case of property held under an operating lease and classified
as investment property
a. That property must be measured using the fair value model, other investment
property held by the entity may be measured using either the fair value model
or the cost model.
b. The entity has a choice between the cost model and fair value model.
c. The entity needs to disclose the fair value and can use the cost model.
d. The entity has to use the fair value model only for all of its investment
property.

13. Transfer from investment property to property, plant, and equipment are
appropriate
a. When there is change of use
b. Based on the entity’s discretion
c. Only when the entity adopts the fair value model under PAS 40

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 d. The entity can never transfer property into another classification on the
balance sheet once it is classified as investment property

14. Which of the following will most likely result to reclassification?

a. An entity decided to dispose of an investment property without development.
b. An entity begins to redevelop an existing investment property for continued
future use as investment property.
c. Commencement of development with a view to sale.
d. All of the above.

15. An investment property is derecognized (eliminated from the balance sheet)

when
a. It is disposed to a third party
b. It is permanently withdrawn from use
c. No future economic benefits are expected from its disposal
d. In all of the above cases

16. PAS40 gives a choice between two different models as the accounting policy to
be used in relation to investment property. Which ONE of the following disclosures
should be made when the fair value model has been adopted?
a. Depreciation methods used
b. The amount of impairment losses recognized
c. Useful lives or depreciation rates used
d. Net gains or losses from fair value adjustments

17. PAS 38 applies to

a. Intangible assets that are not within the scope of another Standard.
b. Financial assets, as defined in PAS 32 Financial Instruments: Presentation.
c. The recognition and measurement of exploration and evaluation assets.
d. Expenditure on the development and extraction of minerals, oil, natural gas
and similar non-regenerative resources.

18. Which is not within the definition of an intangible asset?

a. Identifiable nonmonetary asset without physical substance
b. A resource controlled by an entity as a result of past event
c. A resource from which future economic benefits are expected to flow to the
entity
d. Held for use in the production or supply of goods or services, for rental to
others, or for administrative purposes.

19. Which item listed below does not qualify as an intangible asset?
a. Computer software c. Copyrights that are protected
b. Registered patent d. Notebook computer

20. Which of the following items qualify as an intangible asset under PAS 38?
a. Advertising and promotion on the launch of a huge product
b. College tuition fees paid to employees who decide to enroll in an executive
M.B.A. program at Harvard University while working with the company
c. Operating losses during the initial stages of the project
d. Legal costs paid to intellectual property lawyers to register a patent

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21. The cost of an intangible asset is composed of
a. Purchase price excluding import duties and nonrefundable taxes
b. Purchase price including import duties and nonrefundable taxes
c. Purchase including both refundable and nonrefundable taxes
d. Purchase price including trade discounts and rebates

22. Which is incorrect concerning the recognition and measurement of an

intangible asset?
a. If an intangible asset is acquired separately, the cost comprises its purchase
price, including import duties and taxes and any directly attributable
expenditure of preparing the asset for its intended use.
b. If an intangible asset is acquired in a business combination that is an
acquisition, the cost is based on its fair value at the date of acquisition.
c. If an intangible asset is acquired free of charge or by way of government
grant, the cost is equal to its fair value.
d. If payment for an intangible asset is deferred beyond normal credit terms, its
cost is equal to the total payments over the credit period.

23. The cost of internally generated intangible asset includes the following, except
a. Cost of materials and services used or consumed in generating the intangible
asset
b. Expenditure on training staff to operate the asset
c. Cost to register a legal right
d. Salaries, wages and other employment related costs of personnel directly
engaged in generating the asset

24. Legal fees incurred by a company in defending its patent rights should be
expensed when the outcome of the litigation is
Successful Unsuccessful
a. Yes Yes
b. Yes No
c. No No
d. No Yes

25. When an internally generated asset meets the recognition criteria, the
appropriate treatment for costs previously expensed is:
a. Reinstatement.
b. No adjustment as these amounts may not be reinstated.
c. Include in the cost of the development of the asset.
d. Capitalize into the cost of the asset and adjust the opening balance of
retained earnings.

26. According to the definition provided in PAS 38 Intangibles, activities

undertaken in the ‘research’ phase of the generation of an asset may include:
a. The application of knowledge to a design for the production of new materials.
b. The use of research findings to create a substantially improved product.
c. Using knowledge to materially improve a manufacturing device.
d. Original and planned investigation with the prospect of gaining new scientific
knowledge.

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27. Which statement is correct regarding initial recognition of research and
development costs?
a. All research costs should be charged to expense.
b. All development costs should be capitalized.
c. If an enterprise cannot distinguish the research phase of an internal project to
create an intangible asset from the development phase, the enterprise treats
the expenditure for that project as if it were incurred in the development
phase only.
d. A research and development project acquired in a business combination is not
recognized as an asset.

28. According to PAS 38 Intangibles, in order to be able to capitalize development

outlays an entity must be able to demonstrate the following:
I. Technical feasibility and intention of completing the asset so it will be
available for use or sale.
II. Its ability to reliably measure the expenditure on the development of the
asset.
III. Ability to use or sell the asset.
IV. How the asset will generate probable future economic benefits.
a. I, II and IV only c. II, III and IV only
b. II, and IV only d. I, II, III and IV

29. Which of the following would be considered research and development?

a. Routine efforts to refine an existing product.
b. Periodic alterations to existing production lines.
c. Marketing research to promote a new product.
d. Construction of prototypes.

30. Which of the following costs would be capitalized?

a. Acquisition cost of equipment to be used on current research project only.
b. Engineering costs incurred to advance the product to the full production stage.
c. Cost of research to determine whether a market for the product exists.
d. Salaries of research staff.

31. If a company constructs a laboratory building to be used as a research and

development facility, the cost of the laboratory building is matched against
earnings as
a. Research and development expense in the period(s) of construction.
b. Depreciation deducted as part of research and development costs.
c. Depreciation or immediate write-off depending on company policy.
d. An expense at such time as productive research and development has been
obtained from the facility.

32. PAS 38 Intangibles, prohibits the recognition of the following internally

generated identifiable intangibles:
I. Brands II. Mastheads III. Publishing titles IV. Customer lists
a. I, II and IV only c. II, III and IV only
b. II, and IV only d. I, II, III and IV only

33. Operating losses incurred during the start-up years of a new business should
be
a. Accounted for and reported like the operating losses of any other business.

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 b. Written off directly against retained earnings.
c. Capitalized as a deferred charge and amortized over five years.
d. Capitalized as an intangible asset and amortized over a period not to exceed
20 years.
34. Start-up costs include organizational costs, such as legal and state fees
incurred to organize a new business entity. These costs should be
a. Capitalized and never amortized.
b. Capitalized and amortized over 40 years.
c. Capitalized and amortized over 5 years.
d. Expensed as incurred.
35. Which statement is correct concerning the amortization of an intangible asset?
I. The cost less residual value of an intangible asset with a finite useful life
should be amortized over that life
II. An intangible asset with an indefinite useful life should not be amortized.
III. The maximum amortization period cannot exceed twenty years.
a. I only c. I and III only
b. I and II only d. Neither I, II nor III
36. A consideration not relevant in determining the useful life of the intangible
asset is the
a. The period of control over the asset and legal or similar limits on the use of
the asset
b. Technical, technological, commercial or other types of obsolescence
c. Expected actions of competitors or potential competitors
d. Initial cost
37. The residual value of an intangible asset
a. Is always equal to zero
b. Is equal to zero unless a third party commits to buy the asset at the end of its
useful life and there is an active market for the asset
c. Is equal to zero unless a third party commits to buy the asset at the end of its
useful life or there is an active market for the asset
d. May be increased for the purpose of computing amortization amount
38. The method of amortization used for an intangible asset with a finite life
a. Should always be the straight-line method
b. Need not reflect the pattern of use of the asset
c. Should be the straight-line method if the pattern of use cannot be determined
reliably
d. Should always be the units of production method
39. Goodwill may be recorded when:
a. It is identified within a company.
b. One company acquires another in a business combination.
c. The fair value of a company’s assets exceeds their cost.
d. A company has exceptional customer relations.
40. Which of the following intangible assets should be shown as a separate item
on the statement of financial position?
a. Goodwill b. Franchise c. Patent d. Trademark

☺ - end - ☺

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