Mindanao State University

ACC 111 – Conceptual Framework and Accounting Standard

PAS 38 – Intangible Assets

Name: Rey Marvin Dimapanag

Jayvee Love Diaz

Sources: CPAR

RESA

VSA IRS

PRTC

SMART

CPAR

1. On December 31, 2015, Czar Company exchanged 100,000 ordinary shares of P50
par value for the following assets:

* A trademark valued at P1, 500,000

* A building, including land, valued at 6,500,000 (20% of the value is for the land).

* A franchise right. No estimate of the value is available at the date of exchange.

The ordinary share of Czar Company is selling at P90 on the date of exchange.

How much should be recognized as measurement of the franchise on the date of

exchange?

a. 1,500,000

b. 1,000,000

c. 2,000,000

d. 0

2. Alcazar Company paid 5,000,000 to purchase the following portfolio of intangible with
fair value as indicated:

Internet domain name 1,500,000

Order backlog 1,200,000

In-process research and development 2,400,000

Operating permit 900,000

In addition, Alcazar sent 2,000,000 to run an advertising campaign to boost its image in
the local community.

a. 2,400,000

b. 2,000,000

c. 2,800,000

d. 0

3. Transactions during the current year of the newly organized lovely Company included
the following:

* Paid legal fees of 50,000 and stock certificate costs of 10,000 to complete
organizations of the corporation.

* Hired a clown to stand in front of the corporate office for two weeks and hand our
pamphlets and candy, 15,000.

Legal fees to obtain patent 400,000

Patent application and licensing fees 50,000

It is estimated that in five years other companies will have developed improved similar
process, making the patent process obsolete.

* Acquired both a license to use a special type of container and a distinctive trademark
to be printed on the container in exchange for 6,000 ordinary shares of Lovely Company
selling for P50 both of which may be used for four years.

* Constructed a shed for 350,000 to house prototypes or experimental models to be

developed in future research projects.

* Incurred salaries for the engineer and a chemist involved in the product development
totaling 200,000 in the current year.

How much should be recognized as total initial cost of all intangible assets?

a. 750,000

b. 810,000

c. 950,000

d. 800,000
4. Tobin Company incurred 1,600,000 of research and development costs to develop a
product for which a patent was granted on January 1, 2015. Legal fees and other costs
associated with registration of the patent totaled 300,000. On March 31, 2015, Tobin
paid 450,000 for legal fees in a successful defense of the patent. What is the total
amount that should be capitalized for the patent through March 31, 2015?

a. 750,000

b. 300,000

c. 2,050,000

d. 2,350,000

5. Queen Company developed a new machine that reduces the time required to insert
the fortunes into its fortune cookies. Because the process is considered very valuable to
the fortune cookie industry, Queen Company patented the machine. The following
expenses were incurred in developing and patenting the machine:

Research and development laboratory expenses 500,000

Metal used in the construction of the machine 160,000

Blueprint used to design the machine 60,000

Legal expenses to obtain patent 240,000

Wages Paid for the employees’ work on the research and development,

And building of the machine (60%of the of the time was spent in actually

Building the machine) 600,000

Expense of drawing required by the patent office to be submitted with the

Patent application 30,000

Feed paid to government patent office to process application 50,000

At year-end, Queen Company paid 350,000 in legal fees to successfully defend the
patent against an infringement suit by another entity.

How much of the expenditures should be capitalized as cost of patent?

a. 320,000
 b. 580,000

c. 900,000

d. 380,000

Golden Company developed a new machine for manufacturing baseballs. Because the
machine is considered very valuable, the entity had it patented. The following
expenditures were incurred in developing and patenting the machine:

Purchase of special equipment to be used solely for

Development of the new machine

1,800,000

Research salaries and fringe benefits for engineers

And scientist 200,000

Cost of testing prototype 250,000

Legal cost for filing of patent 150,000

Fees paid to government patent office 50,000

Drawings required by patent office to be filed with

Patent application 40,000

6. How much should be capitalized as cost of patent?

a. 240,000

b. 540,000

c. 740,000

d. 200,000

7. How much research and development cost should be expensed in the current year?

a. 2,250,000

b. 2,000,000

c. 2,490,000

d. 1,800,000

8. Iceberg Company purchased a patent on January 1, 2010 for 6,000,000. The original
useful life was estimated to be 15 years. However, in December 2015, Iceberg’s
controller received information proving conclusively that the product protected by the
Iceberg patent would be obsolete within four years. Accordingly, the entity decided to
write off the unamortized portion of the patent cost over five years beginning in 2015.

What is the patent amortization for 2015?

a. 1,200,000

b. 1,000,000

c. 800,000

d. 400,000

9. On January 1, 2012, Taft Company purchased a patent for 7,140,000. The patent is
being amortized over its remaining legal life for 15 years expiring on January 1, 2027.
During 2015, Taft determined that the economic benefits of the patent would not last
longer than ten years from the date of acquisition.

What would be reported in the statement of financial position as carrying amount of

patent on December 31, 2015?

a. 4,284,000

b. 4,896,000

c. 5,050,000

d. 5,236,000

10. On January 1, 2015, Lava Company purchased a patent for a new consumer
product for 900,000. At the time of purchase, the patent was valid for 15 years.
However, the patent’s useful life was estimated to be only 10 years due to the
competitive nature of the product. On December 31, 2015, the product was permanently
withdrawn from sale under governmental order because of a potential health hazard in
the product.

What amount should Lava charge against income during 2015 if amortization is
recorded at the end of each year?

a. 90,000

b. 540,000

c. 630,000

d. 720,000
11. Zamboanga Company acquired three patents in January 2015. The patents have
different lives as indicated in the following schedule:

Cost Remaining useful life Remaining legal life

Patent X 1,200,000 10 8

Patent Y 2,000,000 5 10

Patent Z 3,000,000 6 15

Patent Z is believed to be uniquely useful as long as the entity retains the right to use it.
In June 2015, the entity successfully defended its right to Patent Y. Legal fees of
450,000 were incurred in this action. The entity’s policy is to amortize intangible assets
by the straight line method to the nearest half year. The entity reports on a calendar-
year basis. What amount of amortization should be recognized for 2015?

a. 1,050,000

b. 1,100,000

c. 1,958,000

d. 1,020,000

12. Gray Company was granted a patent on January 1, 2012, and appropriately
capitalized 450,000 of related costs. Gray was amortizing the patent over its estimated
life of 15 years. During 2015, Gray paid 150,000 in legal costs in successfully defending
an attempted infringement of the patent. After the legal action was completed, Gray sold
the patent to the plaintiff for 750,000. Gray’s policy is to take no amortization in the year
of disposal. In its 2015 income statement, what amount should Gray report as gain from
sale of patent?

a. 150,000

b. 240,000

c. 270,000

d. 390,000

13. On January 1, 2015, Paye Company purchased Che Company at a cost that
resulted in recognition of goodwill of 2,000,000. During the first quarter of 2015, Paye
spent an additional 800,000 on expenditures designed to develop and maintain goodwill
by training and hiring new employee. Due to these expenditures, at December 31, 2015,
Paye estimated that the benefit period of goodwill was indefinite. In its December 31,
2015 statement of financial position, what amount should Paye report as goodwill?

a. 1,800,000

b. 1,900,000

c. 2,000,000

d. 2,660,000

14. Romblon Company purchased another entity for 7,500,000 cash. A schedule of the
far value of entity’s assets and liabilities as of the purchase date follows:

Cash 50,000

Accounts receivable 800,000

Inventory 1,350,000

Property, plant and equipment 4,300,000 6,500,000

Current liabilities 900,000

Note payable – bank (long-term) 1,000,000 1,900,000

Net assets at fair value 4,600,000

What is the goodwill arising from the acquisition?

a. 2,900,000

b. 1,000,000

c. 2,950,000

d. 0

15. Java Company purchased an entity for 6,000,000 cash at the beginning of the
current year. The book value and fair value of the assets of the acquired entity as of the
date of the acquisition are as follows:

Carrying amount Fair Value

Cash 50,000 50,000

Accounts receivable 500,000 500,000

Inventory 1,000,000 1,500,000

Patent 0 250,000

Property, plant and equipment 2,000,000 3,000,000

In addition, the acquired entity had liabilities totaling 2,000,000 at the time of acquisition.
The acquired entity has no other separately identifiable intangible assets.

What is the goodwill arising from the acquisition?

a. 2,700,000

b. 2,450,000

c. 4,450,000

d. 700,000

16. Mayer Company purchased Tara Company for 8,000,000 cash. Tara Company had
total liabilities of 3,000,000. Mayer Company’s assessment of the fair value it obtained
when it purchased Tara Company is as follows:

Cash 1,000,000

Inventory 500,000

In-process research and development 5,000,000

Assembled work force 1,200,000

What is the goodwill arising from the acquisition?

a. 4,500,000

b. 3,300,000

c. 1,500,000

d. 300,000

17. Casanova Company purchased another entity for 5,000,000 cash. The following
carrying amount and fair value were associated with the items acquired in this business
combination:

Carrying amount Fair value

Accounts receivable 2,000,000 2,000,000

Inventory 1,000,000 500,000

Government contact 0 1,000,000

Equipment 400,000 500,000

Short-term loan payable (2,000,000) (2,000,000)

Net assets 1,400,000 2,000,000

The fair value associated with the acquired entity’s government contract is not based on
any legal or contractual relationship. In addition, for obvious reason, there is no open
market trading for an intangible of this sort.

What is the goodwill arising from the business combination?

a. 3,000,000

b. 3,600,000

c. 4,000,000

d. 0

18. On June 30, 2015, High Company purchased for cash at P50 per share all 150,000
ordinary shares outstanding of Skyline Company. Skyline’s statement of financial
position at June 30, 2010 showed net assets with carrying amount of 6,000,000. The
fair value of Skyline’s property, plant and equipment on June 30, 2014 was 800,000 in
excess of carrying amount.

What amount should be recorded by High Company as goodwill on date of purchase?

a. 1,500,000

b. 800,000

c. 700,000

d. 0

19. On December 31, 2015, Star Company purchased for P30 per share all 200,000 of
Moon Company’s outstanding ordinary shares. On this date, Moon’s statement of
financial position showed net assets of 5,000,000. Additionally, the fair value of Moon’s
identifiable assets on this date was 400,000 in excess of their carrying amount.

In Star Company’s December 31, 2015 consolidated statement of financial position,

what amount should be reported as goodwill?

a. 1,000,000
 b. 400,000

c. 600,000

d. 350,000

20. On December 31, 2015, Clever Company purchased for 4,000,000 cash all of the
outstanding ordinary shares of Sun Company when Sun’s statement of financial position
showed net assets of 3,200,000. Sun’s assets and liabilities had fair value different from
the carrying amount as follows:

Carrying amount Fair value

Property, plant and equipment, net 5,000,000 5,750,000

Other assets 500,000 0

Long-term debt 3,000,000 2,800,000

What amount should be reported as goodwill in the December 31, 2015 consolidated
statement of financial position of Clever Company and its wholly-owned subsidiary?

a. 350,000

b. 250,000

c. 750,000

d. 800,000

RESA

1. Sailor Company’s has bought the entity from previous owners through a leveraged
management buy-in (MBI). The company incurred a total transaction cost related to the
MBI in the amount of 5,000,000 which was broken into the following specific cost:
1,000,000 related to the issue own equity instrument, 1,500,000 related to the issue of
the debt instrument and 2,500,000 for the consultants and lawyers fees. The
management proposes to capitalize the 5,000,000 the intangible assets.

What amount should the company recognize as an intangible asset?

a. none

b. 2,500,000

c. 4,500,000
 d. 5,000,000

2. On June 2014, Muller Company acquires one of its key competitors, Cascade
Company. One of the reason for the acquisition was the intention to take Cascade
Company’s brand out of the marketplace and by so doing increase the market share of
Muller Company’s own brand. At the time of acquisition Muller’s brand has a carrying
value of 400,000 which equal to its current fair value. The fair value of the Cascade
Company’s brand was 500,000 with a carting value of 600,000. The management of
Muller Company proposes to record the acquired brand at a value as it will not be used
in the future.

In its June 30, 2014 fiscal year, what amount should Muller Company report as value of
the brand in its consolidated statement of financial position?

a. 400,000

b. 600,000

c. 900,000

d. 1,000,000

3. Michael Company exchanges the rights to distribute a product in Brisbane which

have a carrying amount of 2,000,000, for cash of 1,000,000 and the rights to distribute
the same product of Canberra, with fair value of 1,400,000. The exchange is considered
having the necessary commercial substance.

At the time of exchange, the intangible asset should be initially recorded by Michael
Company at.

a. 1,000,000

b. 1,400,000

c. 2,000,000

d. 2,400,000

4. Podium Company has incurred 200,000 of research expenditure on a project to

develop a new type of fuel and has expensed this cost. On January 2, 2014, Portal
Company purchases the research project, including certain patents that have been
registered by Podium Company for 300,000 and recognizes the costs as intangible
assets. Subsequently, Portal Company incurred 400,000 of expenditures on completing
the research phase and decides to develop the product commercially. It incurs a further
cost of 600,000 in bringing the product to a stage where the conditions for recognizing
the development costs of an internally generated intangible asset are met. Further costs
of 2,000,000 are incurred in bringing the product into a condition where it is ready for
use in the manner the management intends. Initial marketing costs and losses are
incurred of 400,000 before the product was successfully launched.

What total amount should Portal Company recognize as an asset related to the above
costs?

a. 300,000

b. 2,900,000

c. 2,700,000

d. 3,300,000

5. On October 1, 2014, Jupiter, Inc. exchanged 2,000 shares of its P500 per value
ordinary shares held in treasury for a patent owned by Mars Company. The treasury
shares were acquired in 2013 at a cost of 800,000. At the time of exchange, Jupiter’s
ordinary share was quoted at P550 per share and the patent had a carrying value on
Mars’ books of 900,000

At what amount should Jupiter record the patent?

a. 800,000

b. 900,000

c. 1,000,000

d. 1,100,000

6. C Company has developed a database of names and addresses of professional

people who reach their 25th birthdays between the years 2008 and 2014 and intends to
exploit this by selling the information to suppliers of life enhancement products and
solutions for junior executives. The company has incurred a total 500,000 to develop the
data base.

The company has also incurred a total 800,000 of promoting the databases to vendors
of such solutions, such as adventure holiday companies. The company has also
incurred 500,000 losses as there are substantial administrative costs and no income as
yet. C company intends to capitalize all costs incurred in relation to the database
promotion and administrative costs.

What amount of intangible asset should C Company recognize?

a. 500,000

b. 1,000,000

c. 1,300,000

d. 1,800,000

7. Moon Company purchase Patent A for 600,000 and Patent B for 900,000. Moon also
paid indirect costs of 75,000 for Patent A and 105,000 for Patent B. Both patents were
challenged in legal actions. Moon paid 300,000 in legal fees in successful defense of
Patent A and 450,000 in legal fees in an unsuccessful defense of Patent B.

What amount should Moon capitalize for patents?

a. 675,000

b. 975,000

c. 1,680,000

d. 2,430,000

8. On January 2, 2014, Proton Company paid 500,000 to acquire a patent with a

remaining economic useful life of 15 years. Proton Company expects to use the patent
for 5 years and intends to sell it after 5 years. Newton Company has committed to buy
the patent for 40% of the cost to Proton Company.

In its December 31, 2014, what amount of patent amortization should Proton Company
report in its profit or loss?

a. 40,000

b. 60,000

c. 100,000

d. 200,000
9. Stars Corporation incurred 198,900 of research and development costs to develop a
product for which a patent was granted on January 2, 2011, legal fees and other costs
associated with registration of the patent totaled 44,200. On January 2, 2014, Stars paid
62,400 for legal fees in a successful defense of the patent. The patent has a useful
economic life 20 years.

What amount should Stars record as amortization expense for 2014?

a. 2,210

b. 5,200

c. 7,800

d. 19,500

10. Meteor Company purchased a patent on January 1, 2011 for 428,400. The patent
was being amortized over its remaining legal life of 15 years expiring on January 1,
2023. Early 2014, Meteor determined that the economic benefits of the patent would not
last longer than 10 years from the date of acquisition. What amount should be reported
in the statement of financial position as patent, net of accumulated amortization at
December 31, 2014?

a. 257,040

b. 293,760

c. 302,400

d. 314,160

11. Neptune Company spent 288,000 in developing a new product with a patent being
granted on January 2, 2012. Due to the competitive nature of the product, the patent
was estimated to have useful life of ten years. Cost of licensing and registering was
36,000. On July 1, 2014, a competitor obtained rights to a patent, which made
Neptune’s patent obsolete.

How much is the loss from the patent obsolescence?

a. 6,000

b. 16,200

c. 27,000
 d. 36,000

12. Mercury Company brought a patent for 600,000 on January 2, 2011, at which time
the patent had an estimated useful life of ten years. On January 2, 2014, it was
determined that the patent’s useful life would expire at the end of 2017.

How much should Mercury record as amortization expense for this patent on December
31, 2014?

a. 60,000

b. 105,000

c. 120,000

d. 140,000

13. Galaxy Company purchased a patent for 375,000 on January 2, 2011. The patent
was being amortized over its remaining legal life of fifteen years expiring on January 2,
2026. Early January 2, 2014, Galaxy determined that the economic benefits of the
patent would not last longer than ten years from the date of acquisition.

What amount should be charged to patent amortization expense for the year ended
December 31, 2014?

a. 21,000

b. 35,700

c. 40,800

d. 71,400

14. On January 2, 2014, Earth Company bought a trademark from Mars Company for
600,000. Earth retained an independent consultant, who estimated the trademark’s
remaining life to be 20 years. Its amortized cost on Mars’ accounting records was
456,000.

At what amount should the trademark be initially recorded?

a. 456,000

b. 570,000
 c. 585,000

d. 600,000

15. On January 2, 2009, Wind Company bought a trademark for 500,000. The
remaining legal life at the time of acquisition is 20 years. The company made a
responsible and reliable estimate that this trademark will provide additional cash flows
to the enterprise for an indefinite period. During 2012, Wind Company’s Net cash flows
related to the trademark have been on a decreasing trend. As a result of this, the
company decided to evaluate the trademark for possible impairment. On December 31,
2012, reliable estimate showed that the present value of expected net cash inflows
related to the trademark is 240,000.

What amount of impairment loss should the company recognize in 2012?

a. none

b. 240,000

c. 260,000

d. 500,000

16. On January 1, 2010, Better Company bought a trademark for 400,000, having an
estimated remaining useful life of 16 years. After 16 years, revenue expected from this
intangible will be zero. In January 2014, Better Company paid 60,000 for legal fees in a
successful defense of the trademark.

What amount of expense should Better Company recognize and charge against income
during 2014?

a. 15,000

b. 25,000

c. 30,000

d. 85,000

17. Pasture Company has a broadcasting license that expires in 5 years. As of January
1, 2011, the license has a carrying amount of 2,000,000. The license is renewable and
has already been renewed twice in the past. There are no factors to suggest that the
license will not be renewed again and the entity has the intention to do so. The license
is expected to contribute to the entity’s cash flow indefinitely.

In the December 31, 2011 statement of financial position, how much should be reported
as the carrying value of the broadcasting license?

a. none

b. 1,600,000

c. 1,900,000

d. 2,000,000

18. Pastor Company has a broadcasting license that expires in 5 years. As of January
1, 2011, the license has a carrying amount of 1,800,000. The license is renewable and
has already been renewed twice in the past. During the current year 2011, the
broadcasting authority has decided that in the future it will auction the licenses when
they came up for renewal. As a result of this development the company’s renewal option
is no longer assured. The license has a remaining life of three years as of January 1,
2011.

In the December 31, 2011 statement of financial position, how much should be reported
as the carrying value of the broadcasting license?

a. none

b. 1,200,000

c. 1,600,000

d. 2,000,000

19. On January 2, 2011, Sardines Company purchased a franchise with a useful life of
ten years for 100,000. An additional franchise fee of 3% of franchise operation revenues
must be paid each year to the franchisor. Revenues from the franchise operations
amounted to 800,000 during 2011.

In its December 31, 2011 statement of financial position, what amount should Sardines
report as intangible asset franchise?

a. 70,000

b. 87,600
 c. 90,000

d. 100,000

20. On July 1, 2014, Tuna signed an agreement to operate as a franchisee of Can

Company for an initial franchise fee of 1,200,000. On the same date, Tuna paid 400,000
and agreed to pay the balance in four equal annual payments of P200,000 beginning
July 1, 2015. The down payment is not refundable and no future services are required
of the franchisor. Tuna can borrow a 14% for a loan of this type. Present and future
value factors are as follows:

Present value of 1% at 14% for 4 periods 0.59

Future amount of 1 at 14% for 4 periods 1.69

Present value of an ordinary annuity of 1 at 14% for 4 period 2.91

How much should Tuna record as acquisition cost of the franchise on July 1, 2014?

a. 872,000

b. 982,000

c. 1,200,000

d. 1,352,000

VSA IRS

1. Which is incorrect regarding an intangible assets as defined in PAS 38?

a. An 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 administrative
purposes.

2. The following expenditures should be expensed when incurred, except

a. Start-up costs (e.g. organization costs and pre-opening costs)

b. Advertising and promotion costs

 c. Advanced payment from delivery of goods or the rendering of services.

d. Training business relocation and reorganization costs.

3. If an intangible asset is acquired in a purchase business combination, which is false?

a. The cost of the intangible asset is based on is fair value at the date of
acquisition.

b. If there is an active market for the intangible asset, the fair value is equal to the
quoted market price which is usually the current bid price.

c. If there is no active market for the intangible asset, the fair value is equal to the
amount that would be paid by the entity in arm’s length transaction between
knowledgeable and willing parties.

d. If an intangible asset acquired in business combination has a finite useful life,

there is a rebuttable presumption that its fair value cannot be measured reliably.

4. The cost of an intangible asset acquired by way of government grant is recorded at

a. Fair value

b. Nominal amount/zero plus direct costs

c. Either a or b

d. Neither a nor b

5. Amortization is the systematic allocation of the depreciable amount of an intangible

asset. Amortization shall cease when the conditions below except one are present.

a. The asset is classified as held for sale

b. The asset is derecognized

c. The asset is classified as part of discontinued operation

d. The asset is actively used in generating income

6. Which of the following is incorrect regarding the accounting treatment of intangible

assets?
 a. Intangibles are carried at cost less any accumulated amortization and
impairments loss.

b. Intangibles may be carried at revalued amount

c. Intangible assets with limited or finite life are amortized over its useful life while
those with indefinite life are not amortized but tested for impairment regularly

d. Internally generated brands, mastheads, publishing titles, customer lists and

item similar in substance should be recognized as intangible assets.

7. Which of the following is incorrect regarding the useful life of an intangible asset that
arises from contractual or other legal rights shall?

a. Its useful life shall not exceed the period of the contractual right or other legal
rights.

b. Its useful life may be shorter depending on the period over which the entity
expects to use the asset.

c. If the contractual or other rights are conveyed for a limited term that can be
renewed, the useful life of the intangible assets shall include the renewal
period(s) only if there is evidence to support renewal by the entity without
significant cost.

d. Its useful life may exceed the period of the legal rights.

8. A consideration in determining the useful life of an intangible asset is not the

a. Initial cost

b. Legal, regulatory or contractual provision

c. Provision for renewal or extension

d. Expected actions of competitors

9. Which of the following statements is incorrect regarding patent?

a. If the patent is acquired by purchase, then its capitalized cost includes

purchase and other incidental costs.
 b. If the patent is internally developed, then related R & D expenditures are
expense as incurred; the capitalize cost include only licensing and legal fees
incurred in securing the patent rights.

c. Legal fees and other costs of successfully defending a patent are capitalized
as patent cost.

d. Patent should be amortized over the legal life (20 years) or useful life,
whichever is shorter.

10. Which of the following statement is incorrect regarding copyrights?

a. It is a form of protection and exclusive rights given by law to the authors of

literary, musical, artistic and similar works.

b. Copyright is theoretically amortized over its useful life during which benefits,
sales, and royalties are expected.

c. It is a common practice to write off the cost of copyright against the revenues
of the first printing or release.

d. Copyright law protects a copyright during the lifetime of the author plus 20
years after death.

11. Which of the following is false regarding franchise?

a. Franchise agreement may be made between government and private entities.

b. The cost of franchise includes the lump sum payment and all legal fees and e
expenses incurred in connection with franchise acquisition (initial franchise fee)

c. Require periodic or continuing franchise fee should be capitalized in the period

incurred.

d. Franchise should be amortized over contract form or useful life, whichever is

shorter.

12. Which of the following statements is false regarding leasehold?

a. Leasehold is 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.

b. If material, the cost of leasehold is amortized over the lease term.

 c. If immaterial, the cost of leasehold may be charged to outright expense.

d. Leasehold and leasehold improvements are both classified as intangible

assets.

13. Which of the following statements is incorrect regarding trademark?

a. It is a symbol, sign name, logo or other distinctions given to companies for

exclusive use.

b. The legal life of trademark in the Philippines is for a non-renewable term of 20

years.

c. A trademark with an indefinite life is not amortized but tested annually for
impairment

d. Costs of successfully defending a trademark in courts are expensed outright.

14. Which of the following statements is false regarding goodwill?

a. Internally developed goodwill is not recognized as an intangible asset

b. Purchased goodwill arising from business combination is recognized as an

asset.

c. Goodwill should be amortized over its useful life but not to exceed 20 years

d. Goodwill shall be tested for impairments at least annually or more frequently if

events or changes in circumstances indicate a possible impairment.

15. Which of the following statements is false regarding organization costs?

a. It represents costs incurred in forming corporation (e.g. share issuance costs)

b. Organization cost is generally amortized over a period not exceeding 5 years.

c. Organization cost is charged to expense when incurred.

d. Share issuance costs incurred after the initial organization stage or

incorporation is generally charged to share premium account.

16. Which statement is false regarding computer software/

a. Computer software is generally classified as an intangible asset.

 b. Computer software purchased for resale should be treated as inventory.

c. Computer software purchased as an integral part of a machine is treated as

PPE.

d. None of the above.

17. Which of the following statements regarding research and development (R&D) cost
is false?

a. Research activity is the original and planned investigation undertaken with the
prospect of gaining new scientific or technical knowledge and understanding on a
project.

b. Development is the application of research findings or other knowledge to a

plan or design for the production of new product prior to the start of commercial
production.

c. Research cost is recognized as an outright expense in all cases.

d. Development cost is recognized as an outright expense in all cases.

18. Examples of development activities are the following except one.

a. The design, construction and testing of production prototypes and models.

b. The design of tools, jigs, molds and dies involving new technology

c. The design construction and operation of a prior plant that is not of a scale
economically feasible from commercial production.

d. The design construction and testing of a chosen alternative for new or

improved product or process.

19. A research and development cost of which the cost would be expensed as incurred
is

a. Design construction and testing of preproduction prototype and model.

b. Quality control during commercial production.

c. Periodic design change to existing product.

 d. Adaptation of an existing capability to a particular requirement or customer
needs.

20. If an entity 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 of construction

b. Depreciation deducted as part of research and development expense

c. Depreciation or immediate write off depending on accounting policy

d. An expense at such time as productive research had been obtained from the
facility

PRTC

1. PAS 38 shall be applied in accounting for intangible assets, except

A. Intangible assets that are within the scope of another standard

B. Financial assets, as defined in PAS 39

C. Mineral rights and expenditure on the exploration for, or development and

extraction of, minerals, oil, natural gas and similar non- regenerative resources

D. All of the above

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

A. Held for use in the production or supply of goods or services, for rental to others
or administrative purposes.

B. Identifiable non monetary asset without physical substance

C. A resource controlled by an entity as a result of past event

D. A resource from which future economic benefits are expected to flow to the entity

3. Which item listed below does not qualify as an intangible asset?

A. Computer software
 B. Registered patent

C. Copyrights that are protected

D. Notebook computer

4. An intangible asset shall be recognized if, and only if

A. It is probable that the expected future economic benefits that are attributable to
the asset will flow to the entity

B. The cost of the asset can be measured reliably

C. Both a and b

D. Neither a nor b

5. The cost of an intangible asset is composed of

A. Purchase price excluding import duties and non-refundable taxes

B. Purchase price including import duties and non-refundable taxes

C. Purchase including both refundable and non-refundable taxes

D. Purchase price including trade discounts and rebates

6. What is the measurement basis of an asset that acquired in non- monetary

exchange

With commercial substance with no commercial substance

A. Fair value asset given up Carrying amount of asset given

up

B. Carrying amount of asset Carrying amount of asset received given up

C. Carrying amount of asset Fair value of asset received receive

D. Fair value of asset given Fair value of asset given up

7. 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. Original and planned investigation with the prospect of gaining new scientific
knowledge

C. The use of research findings to create a substantially improved product

D. Using knowledge to materially improve a manufacturing device.

8. Research expenditures

A. Are always charged to expense

B. Are always capitalized as intangible asset

C. May be charged to expense or may be capitalized

D. Are capitalized as product cost

9. Development expenditures

A. Are always charged to expense

B. Are always capitalized as intangible asset

C. May be charged to expense or may be capitalized

D. Are capitalized as product cost

10. 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. I, II, III, and IV

B. II, and IV only D. II, III and IV only

11. Which is not considered a research and development activity?

A. Routine on- going efforts to refine, enrich or improve quality of existing product

B. Laboratory research aimed at discovery of new knowledge

C. Conceptual formulation and design of possible product or process

D. Design, construction and operation of a pilot plant

12. A research and development activity for which the cost would be expense as
incurred is

A. Design, construction and testing of pre-production prototypes and models

B. Quality control during commercial production

C. Periodic design changes to existing products

D. Adaption of an existing capability to a particular requirement or customer need.

13. A research and development activity for which the cost would be expense as
incurred is

A. Modification of the design of a product or conceptual formulation and design of a

possible product alternative

B. Trouble shooting in connection with the breakdowns during commercial

production

C. Routine design of tools

D. Engineering follow- through in an early phase of commercial production

14. Which of the following items is a component of the cost of an internally

generated intangible asset?
A. Selling and administrative and other general overhead expenditures than cannot
be directly attributed to preparing the asset for use

B. Identified inefficiencies and initial operating losses

C. Expenditure on training staff to operate the asset

D. Fees to register a legal right

15. In relation to the amortization of intangible assets, if an intangible asset has finite
useful life:

A. It must be amortized over a period not exceeding 40 years

B. It must be amortized across a period not exceeding 5 years

C. It is not subject to an annual amortization charge

D. It must be amortized over that life

16. In relation to amortization of intangible asset, PAS 38 Intangibles, requires that

intangible assets with indefinite useful life lives

A. Are amortized by the straight- line method across their useful lives

B. Must be amortized across a period of no more than 20 years

C. Are not subject to an amortization charge

D. Should not be amortized in a period in which maintenance of the asset occurs

17. 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
 18. 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

19. All costs incurred to establish the technological feasibility of a computer software
product to be marketed or leased should be

A. Capitalized as an intangible asset

B. Capitalized as an inventory

C. Capitalized as property, plant and equipment

D. Charged to expense when incurred

20. Which of the following disclosure is not required by PAS 38?

A. Useful lives of the intangible assets

B. Reconciliation of carrying amount at the beginning and the end of the year

C. Contractual commitments for the acquisition of the intangible assets

D. Fair value of similar intangible assets used by its competitor

SMART

1. Which of the following disclosures is not required by PAS 38?

A. Useful lives of the intangible assets

B. Reconciliation of carrying amount at the beginning and the end of the year

C. Contractual commitments for the acquisition of intangible assets

D. Fair value of similar intangible assets used by its competitors

2. The residual value of an intangible shall be assumed to be zero unless

I. There is a commitment by a third party to purchase the asset at the end of its
useful life

II. There is an active market for the asset from which FV can be determined whether
or not that market will exist

A. I only B. II only C. Both I and II D. Neither I nor II

3. Which of the statements below does not relate to an intangible asset?

A. It is a resource from which future economic benefits are expected to flow to the
enterprise.

B. It is a resource controlled by an enterprise as a result of past events.

C. It is an identifiable non-monetary asset without physical substance.

D. It is held for use in the production or supply of goods or services, for rental to
others, or for administrative purposes.

4. To distinguish it from goodwill, PAS 38 requires an intangible asset to be

A. Probable and measurable

B. Identifiable

C. Capable of being amortized

D. Registered with a government agency

5. Which of the following intangible asset is not identifiable?

A. Computer software C. Franchise

B. Goodwill D. Trademark

6. An asset is identifiable if it either

I. Is separable, i.e. is capable of being separated or divided from the entity and sold,
transferred, licensed, rented or exchanged, either individually or together with a
related contract, identifiable asset or liability, regardless of whatever the entity
intends to do so.

II. Arises from the contractual or other legal rights, regardless of whether those
rights are transferable or separable from other rights and obligations.

A. I only B. II only C. Both I and II D. Neither I nor II

7. Which item listed below does not qualify as an intangible asset?

A. Computer software C. Registered patent

B. Notebook computer D. Copyrights that are protected

8. Under PAS 38, what valuation methods are used for intangible assets?

A. The cost model or the revaluation model

B. The cost model or the fair value model

C. The cost or the fair value through profit or loss model

D. The revaluation model or the fair value model

E.

9. In general, the method to amortize an intangible asset is?

A. SYD C. Declining balance method

B. Straight line method D. Output method

10. An intangible asset with an indefinite life is accounted for as follows

A. No amortization but annual impairment test

B. Amortized and impairment tests annually

C. Amortize and impairment tested if there is a “trigger event.”

D. Amortized and no impairment

 11. An intangible asset with an indefinite life is one where?

A. There is no foreseeable limit on the period over which the asset will generate
cash flows

B. The length of life is over 20 years

C. The directors feel that the intangible asset will not lose value in the foreseeable
future

D. There is a contractual or legal arrangement that lasts for a period in excess of five
years

12. Which of the following intangible assets shall be tested for impairment annually?

I. Intangible assets with indefinite useful life

II. Intangible assets that are not yet available for use

III. Goodwill acquired in a business combination

A. I and II only B. I and III only C. II and III only D. I, II and III

13. Which of the following impairment losses should never be reversed?

A. Loss on the property, plant, and equipment C. Loss on a business segment

B. Loss on goodwill D. Loss on inventory

14. Which of the following research and development related costs should be
capitalized and amortized over current and future periods?

A. Research and development general laboratory building which can be put to

alternative uses in the future

B. Inventory used for a specific research project

C. Administrative salaries allocated to research and development

 D. Research findings purchased from another company to aid a particular research
project currently in process.

15. Taylor Company uses PFRS for financial reporting purposes. Which of the
following is true about accounting for the development costs of the company?

A. Development costs must be expensed.

B. Development costs are always deferred and expensed against future revenues.

C. Development costs may be capitalized as an intangible asset in very restrictive

situations.

D. Development costs are recorded in other comprehensive income.

16. Which of the following is not a component of the cost of internally generated
intangible asset?

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 of employee benefits arising from the generation of the intangible asset

D. Fees to register a legal right

17. On January 1, 2018, Gravity purchased equipment for use in developing a new
product. Gravity uses the straight line depreciation method. The equipment could
provide benefits over a ten-year period. However, the new product development
is expected to take five years, and the equipment can be used only for this
project.

Gravity’s 2018 expense equals?

A. The total cost of the equipment

B. One-fifth of the cost of the equipment

C. One-tenth of the cost of the equipment

D. Zero
 18. Which of the following costs should be excluded from research and development
expense?

A. Modification of the design of a product

B. Acquisition of R & D equipment for use on a current project only

C. Cost of marketing research for a new product

D. Engineering activity required to advance the design of a product to the

manufacturing stage

19. Sloan Corporation is performing its annual test of the impairment of goodwill for
its Financing reporting unit. It has determined that the fair value of the unit
exceeds its carrying value.

Which of the following is correct concerning this test of impairment?

A. Impairment is not indicated and no additional analysis is necessary.

B. Goodwill should be written down as impaired.

C. The assets and liabilities should be valued to determine if there has been an
impairment of goodwill.

D. Goodwill should be rested at the entity level.

20. Under the Intellectual Property Code, copyrights shall be protected?

A. For a period of 20 years.

B. During the life of the author and for 50 years after his death.

C. For a period 50 years or its useful life.

D. For an indefinite period of time.