TRUE OR FALSE

1. A financial liability cannot arise from constructive obligation.

2. A government entity acquires an intangible asset with indefinite useful life for ₱100.
Assuming the entity uses the maximum amortization period for intangible assets
under the GAM for NGAs, the appropriate annual amortization expense on the
intangible asset is ₱10.
3. A government entity does not amortize intangible assets.
4. A provision is a liability of uncertain timing or amount.
5. An entity determines an indication of impairment for the intangible asset with carrying
amount of ₱100. The entity calculates a fair value less costs to sell of ₱90 and a
value in use of ₱105. The impairment loss is ₱5.
6. Financial liabilities, except financial liabilities classified to be subsequently measured
at fair value through surplus or deficit, are initially measured at fair value plus
transaction costs.
7. For subsequent measurement, government entities classify intangible assets into
those with finite and indefinite useful lives, similar to business entities.
8. Government entities amortize all of their intangible assets over a period of 2 to 10
years, unless a more appropriate estimate of useful life is available.
9. Government entities normally assign their intangible assets a residual value of 5% of
cost.
10. If it is not clear whether an expenditure is a research or a development cost, it is
treated as development cost.
11. If one or more of the liability recognition criteria are not met, the item is a contingent
liability.
12. Legal obligations arise only from law.
13. Provisions are never discounted to their present value.
14. Subsequent expenditures on recognized intangible assets are generally expensed
unless it is clear that the expenditures meet the recognition criteria for intangible
assets.
15. The amortization of an intangible asset is credited directly to the intangible asset
account, according to the GAM for NGAs.
16. The development cost of an internally generate intangible asset may be capitalized if
certain conditions are met.
17. The obligation under an onerous contract is recognized as a provision.

Use the following information for the next three questions:

Entity A issues 10-year, term bonds with face amount of ₱ 20 for ₱12 and incurs transaction
costs of ₱ l on the issuance.

18. The initial carrying amount of the bonds is ₱13.

19. The nominal rate of the bonds is higher than the effective interest rate.
20. If in Year 1, the interest payment is ₱ 1.50 while the interest expense is ₱ 2, the
carrying amount of the bonds at the end of the period ·must be ₱ 11.50.

PROBLEM 11-2: MULTIPLE CHOICE

1. In which of the following instances is an asset not considered to be identifiable?
a. The asset can be sold separately regardless of whether the entity intends to do so.
b. The asset arises from a contractual right.
c. The asset can be leased out separately on its own or licensed to be used separately by
other entities in exchange for cash payments.
 d. The asset can only be transferred if the entity is liquidated.

2. Which of the following is most likely to be recognized as intangible asset by a government

entity?
a. Internally generated brand
b. Subsequent expenditure on a copyright
c. Development costs incurred in internally generating a patent
d. Publishing title acquired as a donation
3. Subsequent expenditures on recognized intangible assets are
a. generally capitalized and amortized over the remaining useful life or the extended useful
life.
b. generally expensed, unless they meet the definition of an intangible asset and the asset
recognition criteria.
c. generally capitalized if they meet the conditions of technical feasibility, probable future
economic benefits, and reliable measurement.
d. not accounted for.

4. According to the GAM for NGAs, government entities shall use this measurement model in
subsequently measuring intangible assets.
a. Cost model
b. Revaluation model
c. Fair value model
d. a or b

5. Intangible assets held by government entities are measured as follows:

Initial Subsequent
a. cost cost less accumulated amortization and impairment losses
b. cost fair value less accumulated amortization and impairment losses
c. cost fair value through surplus or deficit
d. a or b

6. The default amortization method for intangible assets with finite useful life is
a. straight line method
b. sum-of-the-years digits
c. double declining
d. none of these

7. which of the following statements is incorrect regarding the accounting for impairment of
intangible assets under the GAM for NGAs?
a. An entity is required to test for impairment an intangible asset with indefinite useful life or
an intangible asset not yet available for use at least annually or whenever there is an
indication of impairment.
b. An entity shall test for impairment an intangible asset with definite useful life only when
an indication of impairment exists.
c. The accounting for impairment of intangible assets, and reversal thereof, is the same as
those of investment property and PPE.
d. Intangible assets are subject to amortization using the straight line method over a period
of 2 to 10 years but are not subject to impairment.
Use the following information for the next three questions:
On December 1, 20x1, Entity A acquired a computed software for P1,000,000 and incurred the
following costs:
• Non-refundable purchase taxes of P30,000, not included in the purchase price above.
• Professional fees incurred in the installation of the software, P100,000.
• Modifications to the software before it was brought to the condition intended by
management for use, P60,000.
• Costs of testing the software, P10,000.
• Training costs of staff who will be using the software, P200,000.
• Costs of updating the software after it was available for use in the condition originally
intended by management, P5,000.
• Administrative and other general overhead costs incurred on the acquisition and
installation of the software, P15,000.

The software’s useful life is 5 years.

8. The entry to initially recognize the software is

a. Computer Software 1,200,000
Cash-Modified Disbursement
System (MDS), Regular 1,200,000
b. Computer Software 1,140,000
Cash-Modified Disbursement
System (MDS), Regular 1,140,000
c. Computer Software 1,400,000
Cash-Modified Disbursement
System (MDS), Regular 1,400,000
d. Computer Software 1,190,000
Cash-Modified Disbursement
System (MDS), Regular 1,190,000

9. Entry to recognize the amortization expense for the current year is

a. Amortization-Intangible Assets 240,000
Computer Software 240,000
b. Amortization-intangible Assets 240,000
Accumulated Amortization-Computer Software 240,000
c. Amortization-Intangible Assets 20,000
Accumulated Amortization-Computer Software 20,000
d. Amortization-Intangible Assets 20,000
Computer Software 20,000
10. On December 31, 20x2, Entity A assesses an indication impairment and makes the following
estimates:
Fair value less costs to sell P700,000
Value in use P800,000

The entry to recognize the event is

a. Impairment Loss-Intangible Assets 140,000
Accumulated Impairment Losses-Computer Software 140,000
b. Impairment Loss-Intangible Assets 140,000
Computer Software 140,000
c. None, the intangible asset is not impaired.
d. None, intangible assets held by government entities are not subject to impairment.

1. Which of the following is not one of the essential an intangible asset?

a. Separability
b. Arising from binding arrangement
c. Control
d. Held for use in the production or supply of goods

2. An intangible asset is identifiable if it

a. is separable
b. arises from binding arrangements
c. is a non-monetary asset without physical substance.
d. a orb

3. Which of the following is an indicator of control?

a. the ability of an entity to benefit from an asset.
b. the ability of an entity to deny or regulate the access of others to the benefit of an asset.
c. an entity can, depending on the nature of the asset, exchange it, use it to provide goods
or services, exact a price for others’ use of it, use it to settle liabilities, hold it, or perhaps
even distribute it to owners.
d. all of these.

4. Which of the following is most likely not an intangible asset?

a. Computer
b. Trademark
c. Acquired import quota
d. Customer list

5. A purchased intangible asset is initially measured at

a. cost
b. fair value
c. the sum of research and development costs
d. the total of development costs
6. The development costs of an internally generated intangible asset can be capitalized if
certain conditions are met. Which of the following is not one of those conditions?
a. Technical feasibility of completing the intangible asset.
b. Intention to complete the intangible asset.
c. Ability to measure reliably the expenditure attributable to the intangible asset during its
development.
d. Existence of similar assets in the market or economic environment where the entity
operates.

7. Internally generated brands, mastheads, publishing titles, lists of users of a service, and
items similar in substance are not recognized as intangible assets because
a. it is illegal to recognize these items as assets, according to international intellectual
property laws and other business laws.
b. it is often difficult to measure separately the costs of these items.
c. these cannot be distinguished from the cost of developing the entity’s operations as a
whole.
d. the entity normally cannot demonstrate its ability to use these, when completed during
their development phase.

8. Government entities normally assign their intangible assets a residual value of

a. 5% of cost
b. 10% of cost
c. 25% of cost
d. zero

9. Which of the following intangible assets is not amortized?

a. Intangible asset with infinite useful life
b. Intangible asset with finite useful life
c. All intangible assets held by a government entity
d. Intangible asset not yet available for use

10. An entity shall test for impairment an intangible asset with finite useful life
a. only when an indication of impairment exists.
b. at least annually or whenever there is an indication of impairment.
c. at each reporting date, including interim periods, if the entity prepares interim financial
statements.
d. Never, because intangible assets held by a government entity is not subject to
impairment; only amortization.