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Question 1

What is an asset

Answer 1

A resource controlled by enterprise as a result of past events and from which future economic benefits are expected to flow to enterprise

Question 2

What is a liability

Answer 2

Present obligation of enterprise arising from past events of which an outflow from enterprise of resources is expected

Question 3

What are the elements of financial statements

Answer 3

Equity - residual amount - assets minus liabilities
income - Increases in equity, other than from contributions by ownersexpenses - decreases in equity, other than from distributions to owners

Question 4

What is recognition

Answer 4

impact of transactions on assets and liabilities with profit as residual

Question 5

What is the criteria for the recognition of an asset

Answer 5

Inflows are probable and cost or value is reliably measured

Question 6

What features may suggest non-recognition

Answer 6

Existence uncertainty, measurement uncertainty, low probability of flows

Question 7

What is an intangible asset

Answer 7

An identifiable non-monetary asset without physical substance

Question 8

What three factors are necessary for an intangible asset to be in IAS 38

Answer 8

Identifiability, control, existence of future economic benefits 

Question 9

What are examples of intangible assets

Answer 9

Patents , copyrights, research and development, trademarks, brand names

Question 10

When should an intangible asset be recognised if future economic benefits are acquired, the principal

Answer 10

It is probable that those benefits will be received and assets cost or other value can be measured reliably

Question 11

Recognition of an intangible asset, applying the principle

Answer 11

For purchased intangible assets, recognition is required in circumstances similar to those for other assets. For internally generated intangible assets recognition is limited to some development projects.

Question 12

What two ways are there of purchasing intangible assets

Answer 12

Separately or as part of a business combination

Question 13

What is research

Answer 13

Original and planned investigation undertaken with prospect of gaining new scientific or technical knowledge and understanding. Pursuit of knowledge without any defined commercial objective

Question 14

What is development

Answer 14

Application of research findings or other knowledge to a Plan or design for production of new or substantially improved materials, devices, products, processes, systems or services before start of commercial production or use.

Question 15

What are the theoretical possible treatments of research and development

Answer 15

Expense – research and development costs recognised as expenses in period in which they are incurred
Expense then reinstate – research and development costs recognised as expenses in period in which they are incurred but are reinstated as intangible assets if costs are subsequently expected to generate future economic benefits
Selective capitalisation – some research and development costs recognised as intangible assets while others recognised as expenses
Capitalisation – All research and development costs recognised as intangible assets

Question 16

What approach does IAS 38 have to research and development

Answer 16

Selective capitalisation approach
Research is expensive
Development costs meeting six conditions must be capitalised

Question 17

How should you treat computer software and website costs (intangible assets)

Answer 17

If purchased, they should be recognised as an asset and recorded (initially and subsequently) at cost. If internally generated, rules for research and development apply.

Question 18

How are intangible assets initially measured

Answer 18

At cost, which is a gross concept

Question 19

What is initial measurement of development

Answer 19

If recognised, initially measured at cost. Cost is sum of expenditure Incurred from date when intangible asset first meets all recognition requirements

Question 20

What is the four stage process

Answer 20

1. is it an asset (liability)
2. is it a good enough assets (liability) to be recognised – probable inflows (outflows), reliably measured cost or value
3. how should it be initially measured
4. how should it be subsequently measured

Question 21

What should be done to an asset if it has a finite life

Answer 21

It should be amortised on a systematic basis over useful life. For intangible assets, residual value is usually assumed to be zero

Question 22

Are intangible assets with indefinite useful lives amortised

Answer 22

No but they must be tested for impairment each year

Question 23

Are all asset recognisable

Answer 23

No. see if expenditure has led to a recognisable asset and if not treat it as an expense