Intangible assets PDF

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Intangible Assets...

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CHAPTER 12 INTANGIBLE ASSETS CHAPTER LEARNING OBJECTIVES 1.

Describe the characteristics of intangible assets.

2.

Identify the costs to include in the initial valuation of intangible assets.

3.

Explain the procedure for amortizing intangible assets.

4.

Describe the types of intangible assets.

5.

Explain the accounting issues for recording goodwill.

6.

Explain the accounting issues related to intangible asset impairments.

7.

Identify the conceptual issues related to research and development costs.

8.

Describe the accounting for research and development and similar costs.

9.

Indicate the presentation of intangible assets and related items.

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Test Bank for Intermediate Accounting, IFRS Edition, 2e

TRUE-FALSE—Conceptual 1.

Intangible assets derive their value from the right (claim) to receive cash in the future. F

2.

All research phase and development phase costs are expensed as incurred. F

3.

Research phase costs are capitalized as an intangible asset once the project has economic viability. F

4.

Companies are required to assess the estimated useful life and salvage value of intangible assets at least annually. T

5.

Impairment testing is conducted annually for both limited–life and indefinite-life intangible assets. F

6.

Amortization of limited-life intangible assets should not be impacted by expected residual values. F

7.

Some intangible assets are not required to be amortized every year. T

8.

Limited-life intangibles are amortized by systematic charges to expense over their useful life. T

9.

The cost of acquiring a customer list from another company is recorded as an intangible asset. T

10.

The cost of purchased patents should be amortized over the remaining legal life of the patent. F

11.

If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent. T

12.

In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible assets, with the remainder recorded as goodwill. T

13.

Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets. F

14.

Internally generated goodwill should not be capitalized in the accounts.

15.

Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received. F

16.

All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs. T

17.

If the recoverable amount of an indefinite-life intangible other than goodwill is less than its carrying value, an impairment loss must be recognized. T

T

Intangible Assets

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18.

A cash-generating unit is the smallest identifiable group of assets in a business that can generate cash flow independently of the cash flows from the business’s other assets. T

19.

The impairment test for goodwill is conducted based on the cash-generating unit to which the goodwill has been assigned. T

20.

Recoveries of impairments for intangible long-lived assets are reported in "other income and expense" on the income statement. T

21.

A recovery of impairment for an intangible long-lived asset is limited to the carrying value that would have been reported had the impairment not occurred. T

22.

After an impairment loss is recorded for a limited-life intangible asset, the recoverable amount becomes the basis for the impaired asset and is used to calculate amortization in future periods. T

23.

After an impairment loss is recorded for goodwill, the recoverable amount becomes the basis for the impaired asset and is used to calculate amortization in future periods. F

24.

Accounting for impairments for limited-life intangible assets follows the same rules used to account for impairments of plant and equipment. T

25.

IFRS permits reversals of impairment losses for all limited and indefinite-life intangible assets. F

26.

Periodic alterations to existing products are an example of research and development costs. F

27.

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent. F

28.

IFRS requires that start-up costs and initial operating losses during the early years be capitalized. F

29.

Research and development costs are recorded as an intangible asset if it is felt they will provide economic benefits in future years. F

30.

Contra accounts must be reported for intangible assets in a manner similar to the reporting of property, plant, and equipment. F

True False Answers—Conceptual Item Ans. 1. F 2. F 3. F 4. T 5. F

Item 6. 7. 8. 9. 10.

Ans. F T T T F

Item 11. 12. 13. 14. 15.

Ans. T T F T F

Item 16. 17. 18. 19. 20.

Ans. T T T T T

Item 21. 22. 23. 24. 25.

Ans. T T F T F

Item 26. 27. 28. 29. 30.

Ans. F F F F F

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Test Bank for Intermediate Accounting, IFRS Edition, 2e

MULTIPLE CHOICE—Conceptual 31.

Which of the following does not describe intangible assets? a. They lack physical existence. c. They provide long-term benefits. d. They are classified as long-term assets.

32.

Which of the following characteristics do intangible assets possess? a. Physical existence. b. Claim to a specific amount of cash in the future. d. Held for resale.

33.

Which characteristic is ฀฀฀possessed by intangible assets? b. Identifiable. c. Result in future benefits. d. Expensed over current and/or future years.

34.

Costs incurred internally to create intangibles are a. capitalized. b. capitalized if they have an indefinite life. d. expensed only if they have a limited life.

35.

Which of the following costs incurred internally to create an intangible asset is generally expensed? b. Filing costs. c. Legal costs. d. All of these choices are correct.

36.

The major problem of accounting for intangibles is determining a. fair value. b. separability. c. salvage value.

37.

Copyrights should be amortized over a. their legal life. b. the life of the creator plus fifty years. c. twenty years.

38.

A patent should be amortized over a. twenty years. b. its useful life. c. its useful life or twenty years, whichever is longer.

Intangible Assets 39.

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Limited-life intangibles are reported at their a. replacement cost. c. acquisition cost. d. liquidation value.

40.

Which of the following methods of amortization is normally used for intangible assets? a. Sum-of-the-years'-digits c. Units of production d. Double-declining-balance

41.

The cost of an intangible asset includes all of the following except a. purchase price. b. legal fees. c. other incidental expenses.

42.

Factors considered in determining an intangible asset’s useful life include all of the following except a. the expected use of the asset. b. any legal or contractual provisions that may limit the useful life. c. any provisions for renewal or extension of the asset’s legal life.

43.

Under current accounting practice, intangible assets are classified as a. amortizable or unamortizable. c. specifically identifiable or goodwill-type. d. legally restricted or goodwill-type.

44.

S

45.

Companies should evaluate indefinite life intangible assets at least annually for: a. recoverability. b. amortization. . d. estimated useful life. One factor that is not considered in determining the useful life of an intangible asset is b. provisions for renewal or extension. c. legal life. d. expected actions of competitors.

46.

Which intangible assets are amortized? Limited-Life Indefinite-Life a. Yes Yes c. d.

No No

Yes No

12 - 6 47.

Test Bank for Intermediate Accounting, IFRS Edition, 2e The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser's patented products should be a. charged off in the current period. b. amortized over the legal life of the purchased patent. c. added to factory overhead and allocated to production of the purchaser's product. p

48.

.

Broadway Corporation was granted a patent on a product on January 1, 2004. To protect its patent, the corporation purchased on January 1, 2015 a patent on a competing product which was originally issued on January 10, 2011. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be a. amortized over a maximum period of 20 years. b. amortized over a maximum period of 16 years. d. expensed in 2015.

49.

Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to a. patents and amortized over the legal life of the patent. b. legal fees and amortized over 5 years or less. c. expenses of the period.

50.

Which of the following is not an intangible asset? a. Trade name c. Franchise d. Copyrights

51.

Which of the following intangible assets should not be amortized? a. Copyrights b. Customer lists d. All of these intangible assets should be amortized.

52.

When a patent is amortized, the credit is usually made to b. an Accumulated Amortization account. c. an Accumulated Depreciation account. d. an expense account.

53.

When a company develops a trademark the costs directly related to securing it should generally be capitalized. Which of the following costs associated with a trademark would not be allowed to be capitalized? a. Attorney fees. b. Consulting fees. d. Design costs.

Intangible Assets 54.

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In a business combination, the excess of the cost of the purchase over the fair value of the identifiable net assets purchased is a. other assets. b. indirect costs. d. a bargain purchase.

55.

Goodwill may be recorded when a. it is identified within a company. c. the fair value of a company’s assets exceeds their cost. d. a company has exceptional customer relations.

56.

When a new company is acquired, which of these intangible assets, unrecorded on the acquired company’s books, might be recorded in addition to goodwill? a. A trade name. b. A patent. c. A customer list.

57.

Which of the following intangible assets could not be sold by a business to raise needed cash for a capital project? a. Patent. b. Copyright. d. Trade name.

58.

The reason goodwill is sometimes referred to as a master valuation account is because a. it represents the purchase price of a business that is about to be sold. c. the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation. d. it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value.

59.

Purchased goodwill should a. be written off as soon as possible against retained earnings. b. be written off as soon as possible as an other expense item. c. be written off by systematic charges as a regular operating expense over the period benefited.

60.

The intangible asset goodwill may be b. capitalized either when purchased or created internally. c. capitalized only when created internally. d. written off directly to retained earnings.

12 - 8 61.

Test Bank for Intermediate Accounting, IFRS Edition, 2e A loss on impairment of an intangible asset is the difference between the asset’s a. carrying amount and the expected future net cash flows. c. recoverable amount and the expected future net cash flows. d. book value and its fair value.

62.

Recovery of impairment is recognized for all the following except a. Patent held for sale. b. Patent held for use. c. Trademark.

63.

All of the following are true regarding recovery of impairments for intangible assets except

b. No recovery of impairment is allowed for Goodwill. c. A recovery of impairment will be reported in the "Other income and expense" section of the income statement. d. The amount of the recovery is limited to the carrying value of the asset that would have been reported had no impairment occurred. 64.

Which of the following is not a criteria which must be met before development costs can be capitalized? a. The company has sufficient financial resources to complete the project. b. The company intends to complete the project and either use or sell the intangible asset. . d. The project has achieved technical feasibility.

65.

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

66.

Which of the following principles best describes the current method of accounting for research and development costs? a. Associating cause and effect b. Systematic and rational allocation c. Income tax minimization

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67.

How should research and development costs be accounted for, according to an IASB Statement? a. Must be capitalized when incurred and then amortized over their estimated useful lives. b. Must be expensed in the period incurred. c. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved.

68.

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.

69.

Research and development costs a. are intangible assets. . c. are easily identified with specific projects. d. all of the above.

70.

Which of the following is considered research and development costs? a. Laboratory research aimed at discovery of new knowledge. b. Application of research findings or other knowledge to a plan or design for a new product or process. c. Conceptual formulation and design of possible product or process alternatives.

71.

Which of the following is considered research and development costs? a. Planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. b. Application of research findings or other knowledge to a plan or design for a new product or process. c. Neither a nor b. .

72.

Which of the following costs should be capitalized in the year incurred? a. Research and development costs. b. Costs to internally generate goodwill. c. Organizational costs.

73.

Which of the following costs would be capitalized? a. Acquisition cost of equipment to be used on current research project only. c. Cost of research to determine whether a market for the product exists. d. Salaries of research staff.

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Test Bank for Intermediate Accounting, IFRS Edition, 2e

74.

Which of the following costs would not be capitalized? a. Acquisition cost of equipment to be used on current and future research projects. b. Engineering costs incurred to advance the project to the full production stage. c. Cost incurred to file for patent. .

75.

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 d. Engineering activity required to advance the design of a product to the manufacturing stage

76.

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. 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.

77.

Operating losses incurred during the start-up years of a new business should be 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.

78. 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. 79. Which of the following would not be considered an R & D activity? b. Application of research findings or other knowledge to a plan for a new product or process. c. Laboratory research aimed at discovery of new knowledge. d. Conceptual formulation and design of possible product or process alternatives. 80. Which of the following intangible assets should be shown as a separate item on the statement of financial position? b. Franchise c. Patent d. Trademark

Intangible Assets

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81. Which of the following should not be reported under the “Other income and expense” section of the income statement? a. Goodwill impairment losses. . c. Recovery of impairment losses d. All of these choices are correct. 82. The total amount of patent cost amortized to date is usually a. shown in a separate Accumulated Patent Amortization account which is shown contra to the Patent account. b. shown in the current income statement. . d. reflected as a contra property, plant and equipment item. 83. Intangible assets are reported on the statement of financial position a. with an accumulated depreciation account. b. in the property, plant, and equipment section. d. None of these choices are correct.

Multiple Choice Answers—Conceptual Item

31. 32. 33. 34. 35. 36. 37. 38.

Ans.

b c a c a d d d

Item

39. 40. 41. 42. 43. 44. 45. 46.

Ans.

b b d d b c a b

Item

47. 48. 49. 50. 51. 52. 53. 54.

Ans.

d c d b c a c c

Item

55. 56. 57. 58. 59. 60. 61. 62.

Ans.

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