CHAPTER 42 INTANGIBLE ASSETS QUESTION 42-1 Define an intangible asset. ANSWER 42-1 PAS 38, paragraph 8, simply defines an intangible asset as an identifiable nonmonetary asset without physical substance. Paragraph 8 further staies that the intangible asset must be controlled by the entity as a result of past event and from which future economic benefits are expected to flow to the entity. QUESTION 42-2 What are the two conditions for the recognition of an intangible asset? ANSWER 42-2 1. It is probable that the future economic benefits that are attributable to the asset will flow to the entity. 2. The cost of the intangible asset can be measured reliably. QUESTION 42-3 What are the three essential criteria in the definition of an intangible asset? ANSWER 42-3 The three essential criteria in the definition of an intangible asset are: 1, Identifiability 2. Control c. Future economic benefits 551QUESTION 42-4 Egplain the meaning of “ ANSWER 42-4 ‘An asst i identifiable when: identifiability”. Tein soparabl ‘hismean that the asetis capable of being separ, Fes tntty and sold, transferred, licensed rating tore ether individually or togethor wiht s Steak asset or abligy "aa . Tearss fiom contractual or other legel rights, QUESTION 42-5 Explain the element of “contol” of an intangible assoy? ANSWER 42-5 Controls the power of th entity to obtain the ‘Gana ithe power. future econo ‘pei owing om the intangible anset and rest the gas ‘The entity must be able to enjoy th ‘Pa enty must babe lo enjy the fur economic be onthe ase and prevent ators eso ea Py a ein sept met rene he _ enfrcea able court of law, for example, trademark, QUESTION 42. 5 i . plain the meaning of “future economic benefits ANSWER 42.5 ey predcsor service: eam, include revenue from the sale of pent a ty ager Seale example, the use of ot the legal intellectual ‘Property production eed nee gy 852 7 QUESTION 42-7 What is the cout of an intangible asset that is “acqu separately”? . ; ANSWER 42-7 ‘The cost of an intangible asset comprises the purhose import duties and nonrefundable purchase taxes, and any efor the intended ireetly attributable cost of preparing the Directly attributable cvsts include ¢ arising directly from bringing the a Condition, professionsi fees arising directly from bring! ‘esset to the workin: condition, and costs of testing whether the asset is functioning properly QUESTION 42-8 What is the cost of an internally generated intangible asset? ANSWER 42-8 ‘The cost of an internally generated intangible asset compres al det tribuabl costs neceseay 0 csate produce and prepare the asset to be capable of operating it In the manner intended by management. Examples of directly attributable costs are Cost of materials and services used or consumed in generating the intangible ascot b. Cost of employee benefits atising from the generation of the intangible asset - Pees to register a legal vight 4. Amortization of patents and licenses that are used to generate the intangible asset. PAS 38, paragraph 69, explicitly provides that “inferally Prats! mastheads, publishing tiles, customer ats generated brands, masthen ind items similar in substance shall not be recognized as ‘Accordingly, such expenditures shall be expensed when incurred.{QUESTION 42-9 Jn the measure™m' recognition. ANSWER 42-9 Tritially an entity shall measure an intangible assor 5 ent of an intangible asset af However, after initicl recognition, an entity hos, However, oy or revaluation model ss k= secon Cost model Anintangible asset shall be carried at cos, less any accu, ‘amortization and any accumulated impairment loss Revaluation model ‘An intangible asset shall be carried at a revalued amo any subsequent amortization and any subsequent accu impairment loss. “An intngible asset can only be carr alved ome 5: Im oh wei orkes fhe comes CH : er QUESTION 42-10 - Explain the amortization of an intangible asset. is the systematic allocation of the amortizable an intangible aset over the usefl he the following guidelines on amortization ‘States that intangible assets with limited or re amortized over the useful life. ‘assets are tested for impairment Period when there is an indication § state that intangible assets with Amortized but are tested fr QUESTION 42-11 Explain the useful life of an intangible asset ANSWER 42-11 ‘The useful life of an intangible asset must be as indefinite or finite. If finite, the useful life may be expressed in terins of years or the number of units to be produced. ‘The useful life of an intangible asset is indefinite when there is na foreseeable limit to the period over which the osset is expected fo generate net cash flows. QUESTION 42-12 What is the method of amortizing the cost of an intangible asset? ANSWER 42-12 ‘The method of amortization chall reflect the pattern in which the economic benefits from the asset are consumed. However, if such pattern cannot be determined reliably, the straight line method of amortization shall be used. Amortization shall begin when the intangible asset is available for the intended use. QUESTION 42-13 Explain the residual value of an intangible asset. ANSWER 42-13, ‘The residual value of an intangible asset shall be presumed to be zero, except: a. When a third party is committed to buy the intangible asset at the end of the useful life. b, When there is an active market for the intangible asset that the expected residual value can be measured and it is probable that there will be a market for the asset at the end of the useful life.ple ch a QuesTion v2-14 Muli! be met foram ion ye 1, Which condi qaset ator than certo " - wed reliably a The im is part of an activity wimied st yan coubstanec 2, An intangible asset is identifiable whe a. Its separable, bt arises from contractual snd other leg rely ¢. Ttis either separable or it arises from «sn tea other legal right. : 4. This neither separable nor it arises from cyst, and other legal right. 3. Which statement is true in relation to control by 1 of the intangible asset? a. The capacity of the entity to control the ecx vem benefits from an intangible asset would norinilly stem, from legal rights that are enforceable in a court of Jaw. b Mhe abl of employees arising out ofthe bene raining costs cannot be recognized as intangible sce ¢. Market share and customer loyalty ca rg norms aly be recognized as intangible asset because ay: entity cannot control the action of customers. 4. All of these statements are true. 4.An intangible asset It is probable that fut : Wi to the entit gost ef the intangible asset can be mencuced lial; © Itis possible to ap°esble that future economic benefits attributahe a, {mipette anes canbe mecaurn ng he oe L It is: probable that Toure ccanetnic benefits cost of intangibl flow to the entity and Oy ‘8set can be measured reliebly’ all be recognized if ‘The cost of a separately acquired intangible asset comprises 5 tho purchase price and " Cost of introducing a new product or service Cost of conducting a business in a new location Administration and other general overhead coat Directly attributable cost of preparing the asset for the intended use. Directly attributable costs of preparing the intangible © Br the intended use include all ef the fllowing excort a. Cost of employee benefit arising directly from bringing the asset to the working condition b. Professional fees arising directly from bringing the asset to the working condition ¢, Gost of tosting whether the asset is functioning properly 4. Initial operating losses 7 Which statement is true in relation to internally generated intangible asset? a. Internally generated brand, masthead, publishing tite and customer list shall not be recognized as an intangible asset, b. The cost of internally generated intangible asset, comprises all directly attributable costs necessary to produce and prepare the asset for the intended use ¢. Internally generated goodwill shall not be recognized as an intangible asset. 4. All of these statements are true. & The cost of an interally generated asset includes all of the following, except a. Cost of materials and services used in generating the intangible asset. b. Compensation costs of personnel directly engaged in aerating the sant Fees to register a legal ri d. Expenditure on training staff to operate the asset. ANSWER 42-14 Ld ad bd a4 Re 44 64 adquestion 42s Mull tial recognition, 3" 1. fer initial ton model & Rel vvauntion vel Gust model or fair value model a. The useful life of the intangible determined. b, An active market exists for the intangibic ¢, Theenstofthe intangible asset can be mousu 4. The intangible asset is a monetary asse', 8, Which statement is true concerning amoriv ‘impairment of intangible assets? le assets with finite useful life ars useful life. le asses with finite useful lie a ‘t end of reporting peciod wi “san indication of impairment. Intangible assets with indefinite, useful ‘ive d but are tested for impairmen’ lly. limit to the period over whi: Mito generate net cash inflows toh nit to the period over which net cash inflows to tit ingible asset arises {ro le asset arises from le! 5, What is the method of amortizing intangible a: ‘a. The straight line method, unless the pattern of economic benefits can be determined reliably ‘The double declining balance in all circumstances, ‘A subjective amount of periodic amortization ‘The straight line method in all circumstances ees 6 The residual value of an intangible asset with a finite useful life shall be assumed zero, except a. When there is a commitment by a third party to purchase the asset at the end of the useful life. b, When there is an active market for the asset. ¢. When there is a commitment by a third party to purchase the asset at the end of useful life or there is fn active market for the asset and itis probable that such market will exist at the end of useful life, a. There are no exceptions. 7. One factor that is not considered in determining the useful life of an intangible asset is a. Residual value b, Provision for renewal or extension c. Legal life d. Expected action of competitors ‘8. Factors in determining the useful life of an intangible asset, include all, except a. The expected use of the asset b. Any legal or contractual provision c. Any provision for,renewal or extension of the legal life d. The amortization mothod ANSWER 42-15 Le ba 2b Be aa la a adquestion 4218 Multiple choice (17 1 Which dee not cua a8. intanei ‘a Computer software Registered patent ce, Copyright @. Notebook computer 12, Which ofthe following would qualify 2s a> ‘oy a. Advertsing and promotion i b. Tuition fees paid to employees who deci il an MBA program while working with + i ¢ Operating losses during the initia? st 4. Legal costs paid to lawyers to regisier a poe The eopnition eiteria for an intangible oss of the flowing conditions? es ___& The intangible assot must be measured ai cs _® Thecostoan be measured reliably. © Kis orbable that future eoenomie benofit vl that future economic benefit, wii! le and the cost ean be measured relissiv. ‘tatementin relation to intangible assets is ir wot ygnnnet be treated as having 20 ith a finite useful life shal b ab cost and tested annually for Tecogittfed in a business combination dif the assets have alread! Once recognized, intangible assets can be carried at umulated amortization imulated amortization and impairment Rovalued emount, less accumulated amortization Cost plus a notional increase in fair value since the intangible asset is acquired Which is not a consideration in determining the useful life of an intangible asset? 1, Legal, regulatory or contractual provision ». Provision for renewal or extension . Initial cost 4. Obsolescence 1, Amortization of an intangible asset with a nite useful life hall commence when a. It is first recognized as an asset. b. It is probable that it will generate future economic benefits. ., Itis available for the intended use. 4. The cost can be identified with reasonable certainty. 8, Which disclosure is not required with respect to intangible assets? ‘a, Useful life of the intangible asset . Reconciliation of carrying amount at the beginning and ‘the end of the year e. Contractual commitment for the acquisition of intangbile asset 4. Fair value of similar intangible asset used by the competitor ANSWER 42.16 La ad 5b Re Ra ad Be adQuesTION 42-18 Multiple choice (IAA) 1. Whe ‘qe assct lacks physical substance The aseet is monetary. b The asset provides future benefits &; The asset is classified a5 noncurrent asset js a characteristic of an intangible asset? hy statement does not describe an intangible asset? ich x sera se , en existence ated io able and godwll type & Gaim for a specific amount of cash «See ed and gpd PE © arid 4. Held for sal saute with indefinite useful life are ‘fran festa | 4 costs incurred internally to create an intangible asset . are generally ‘a Qunrtery at the quarterly reporting date generally Capitalized Annually at the annual reporting date a © Bianualy atthe reporting date & Capitalized if useful lite is indefinite 4G. There is no definite guideline for impairment ‘c, Expensed phen incurred @._Expensed if useful Ife is limited 4. The mar poben fran intangible asset ia deter micas ining | 4. An intangible asset that was acquired separately shall & Sy initially be recognized at © Residual value a. Recoverable amount Ue tl ie b Either Cost or fair vaue atthe choice of the acquirer non ©. Fair value = cn et narod during the start-up years of d. Cost & counted otk any other 5, Intangible assets with indefinite life test é eter san es sper os ao te life tested at least 4 Capcad ara matted Or five ye ie a. Recoverability went yar 2” INEe asset and amortized over b. Amortization AN c. Impairment : ‘SWER 42.17 @. Estimated useful life eal ANSWER 42-18 eee ate 3. me .e 44 Boe PS.