Chapter 3 - Intangible Assets

Question 1

What is an intangible asset?

Answer 1

an identifiable non-monetary asset without physical substance

Question 2

What are some examples of intangible assets?

Answer 2

licences, quotas, patents and brand names

Question 3

In order to be identifiable the asset must be what?

Answer 3

• be separable - capable of being separately bought and sold
• arise from legal or contractual rights

Question 4

An intangible asset must be what to be recognised?

Answer 4

• meet definition
• generate a probable flow of economic benefit
• be capable of reliable measurement

Question 5

Intangible asset are initially measured at what?

Answer 5

cost

Question 6

intangible assets are amortised in what way?

Answer 6

• on a systematic basis over their useful lives

Question 7

What happens if the assets useful like is indefinite?

Answer 7

the asset will not be amortised but will be subject to an annual impairment review

Question 8

What is the cost model?

Answer 8

cost - amoritisation

Question 9

what is the revaluation model?

Answer 9

revalued amount - amortisation

Question 10

what does the revaluation model require?

Answer 10

demands the existence of an active market

Question 11

what does a active market require?

Answer 11

• homogenous products
• willing buyers and sellers
• prices available to public

Question 12

What happens with internally generated intangible assets?

Answer 12

cannot be capitalised, as the cost of their creation is not capable of reliable measurement

Question 13

how is amortisation calculated?

Answer 13

over its useful life, with the annual expense shown in the SPL, normally using the straight-line method with a zero residual value

Question 14

What are some examples of internally generated items that may never be recognised?

Answer 14

• goodwill
• brands
• mastheads (title of a newspaper or magazine)
• publishing titles
• customer lists

Question 15

What is goodwill calculation?

Answer 15

The difference between the value of a business as a whole and the fair value of its identifiable net assets

Question 16

What is goodwill?

Answer 16

the difference between the value of a business as a whole and the fair value of its identifiable net assets. Effectively the premium paid by an acquiring entity over and above the identifiable net assets

Question 17

What is purchased goodwill?

Answer 17

when one business acquires another as a going concern

Question 18

What is non-purchase goodwill?

Answer 18

also known as inherent goodwill. it may be an estimate that any entity places on internally generated reputation or staff motivation. not recognised as no separable value

Question 19

What is negative goodwill?

Answer 19

may arise if an entity pays less for another entity than the value of that entity’s net assets.

Question 20

where is negative goodwill recognised?

Answer 20

Will not be capitalised so will be recognised in the SPL as a credit

Question 21

What is research?

Answer 21

original and planned investigation to gain new scientific knowledge and understanding

Question 22

what is development?

Answer 22

the application of knowledge to create some new or improved material, product, service, process or device

Question 23

What is the accounting treatment for research expenditure?

Answer 23

written off as incurred to the SPL
DR Expense
Cr Cash/payable

Question 24

What is the accounting treatment for development expenditure?

Answer 24

capitalised only once all the recognition criteria is satisified
Dr Intangible asset
Cr Cash/payble

Question 25

What is the development expenditure capitalisation criteria?

Answer 25

Probable flow of economic benefit
Intention to complete the project
Reliable measurement of development costs
Adequate resources available to complete the project
Technically feasible
Expected to be profitable

Question 26

How are development costs amortised?

Answer 26

commences as soon as commercial production begins, either on straight-line or in relation to expected production levels