Chapter 11

Question 1

What are intangible assets?

Answer 1

Intangible assets are non-physical assets that represent a legal right or competitive advantage.

Question 2

True or False: Intangible assets can be seen and touched.

Answer 2

False

Question 3

Name two common types of intangible assets.

Answer 3

Patents and trademarks

Question 4

What is a patent?

Answer 4

A patent is a legal right granted for an invention, giving the inventor exclusive rights to use, sell, or license the invention.

Question 5

Fill in the blank: Intangible assets are typically recorded on the balance sheet under ______.

Answer 5

non-current assets

Question 6

What is the typical useful life of an intangible asset?

Answer 6

It can vary, but many intangible assets have a useful life of 10 to 20 years.

Question 7

True or False: Goodwill is considered an intangible asset.

Answer 7

True

Question 8

What is goodwill?

Answer 8

Goodwill is the amount paid for a business above the fair value of its identifiable net assets.

Question 9

What kind of intangible asset is a trademark?

Answer 9

A trademark is a recognizable sign, design, or expression that distinguishes products or services of one entity from others.

Question 10

What is the difference between finite and indefinite intangible assets?

Answer 10

Finite intangible assets have a limited useful life, while indefinite intangible assets do not have a foreseeable limit to their useful life.

Question 11

True or False: Intangible assets can be amortized.

Answer 11

True

Question 12

What is the process of amortization in relation to intangible assets?

Answer 12

Amortization is the gradual writing off of the cost of an intangible asset over its useful life.

Question 13

Name one example of an indefinite intangible asset.

Answer 13

Trademark

Question 14

What is an example of a finite intangible asset?

Answer 14

Patent

Question 15

What is the initial measurement basis for intangible assets?

Answer 15

Intangible assets are initially measured at cost.

Question 16

Fill in the blank: Intangible assets are subject to ______ if they have an indefinite useful life.

Answer 16

annual impairment testing

Question 17

What accounting standard governs the treatment of intangible assets?

Answer 17

International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP)

Question 18

True or False: Research and development costs can be capitalized as intangible assets.

Answer 18

False, they are generally expensed as incurred.

Question 19

What is the significance of the ‘useful life’ of an intangible asset?

Answer 19

The useful life determines the period over which the asset can be amortized.

Question 20

What is a licensing agreement in the context of intangible assets?

Answer 20

A licensing agreement allows one party to use another party’s intangible asset for a specified period.

Question 21

Fill in the blank: The value of intangible assets is often derived from their ______.

Answer 21

future economic benefits

Question 22

What is a franchise in terms of intangible assets?

Answer 22

A franchise is a right or license granted to an individual or group to market a company’s goods or services.

Question 23

True or False: Intangible assets do not have a physical form, but they can still have significant value.

Answer 23

True

Question 24

What information must be disclosed in financial statements regarding intangible assets?

Answer 24

The nature, useful life, amortization method, and carrying amount.

Question 25

What is the impact of impairment on intangible assets?

Answer 25

Impairment reduces the carrying value of an intangible asset on the balance sheet.

Question 26

True or False: All intangible assets can be sold or transferred.

Answer 26

False, some intangible assets may have restrictions on transfer.

Question 27

What is customer loyalty considered in the context of intangible assets?

Answer 27

Customer loyalty can be seen as a form of intangible asset associated with goodwill.

Question 28

What does the term 'trade secret' refer to?

Answer 28

A trade secret is a formula, practice, or process that is not generally known or reasonably ascertainable, giving a business a competitive edge.

Question 29

Fill in the blank: Intangible assets acquired in a business combination are recognized at ______.

Answer 29

fair value

Question 30

What is the primary reason for recognizing intangible assets on the balance sheet?

Answer 30

To reflect the economic value they provide to the business.

Question 31

True or False: Intangible assets can be created internally within a company.

Answer 31

True

Question 32

What is the role of market research in developing intangible assets?

Answer 32

Market research can help identify opportunities for creating valuable intangible assets.

Question 33

What is the significance of the 'carrying amount' of an intangible asset?

Answer 33

The carrying amount represents the value at which the asset is recognized on the balance sheet.

Question 34

What is a software license considered in terms of intangible assets?

Answer 34

A software license is classified as an intangible asset when it provides rights to use software.

Question 35

Fill in the blank: The amortization of intangible assets is typically done on a ______ basis.

Answer 35

straight-line

Question 36

What is the impact of technological advancements on intangible assets?

Answer 36

Technological advancements can lead to the creation of new intangible assets or the obsolescence of existing ones.

Question 37

True or False: Intangible assets can only be acquired through purchase.

Answer 37

False, they can also be generated internally.

Question 38

What is a brand in terms of intangible assets?

Answer 38

A brand is a name, term, design, or symbol that identifies and differentiates a product from others.

Question 39

What are the key considerations for valuing intangible assets?

Answer 39

Future economic benefits, market conditions, and the asset's useful life.

Question 40

Fill in the blank: The impairment of intangible assets is tested when events occur that indicate ______.

Answer 40

the carrying amount may not be recoverable

Question 41

What is the role of an auditor in relation to intangible assets?

Answer 41

An auditor assesses the valuation and disclosure of intangible assets in financial statements.

Question 42

True or False: Intangible assets have a physical presence in the business.

Answer 42

False

Question 43

What are the consequences of not properly accounting for intangible assets?

Answer 43

It can lead to misrepresentation of financial health and compliance issues.

Question 44

What is a non-compete agreement?

Answer 44

A non-compete agreement is an arrangement where one party agrees not to enter into competition with another party.

Question 45

Fill in the blank: Goodwill is only recognized in a business acquisition when the purchase price exceeds ______.

Answer 45

the fair value of identifiable net assets

Question 46

What does the term 'intangible asset impairment' refer to?

Answer 46

It refers to a permanent reduction in the value of an intangible asset.