Intangible assets

Question 1

An intangible asset is an

Answer 1

identifiable non-monetary asset without physical substance.

Question 2

In order to be identifiable the asset must either

Answer 2

be separable–capable of being separately bought and sold

or

arise from legal / contractual rights.

Question 3

Recognition - An intangible asset must

Answer 3

meet the above definition

generate a probable flow of economic benefit

be capable of reliable measurement.

Question 4

Measurement - Purchased intangibles are initially measured at cost. Subsequently there is a choice between:

Answer 4

Cost model – cost less amortisation
Revaluation model –revalued amount less amortisation.

Question 5

The revaluation model is rare in practice as its use demands the existence of an active market. Active markets require:

Answer 5

Homogeneous (identical) products

Willing buyers and sellers

Prices available to the public.

Question 6

Intangible assets with an indefinite useful life are not

Answer 6

amortised, but are tested annually for impairment.

Question 7

Goodwill is the difference between the

Answer 7

value of a business as a whole and the fair value of its identifiable net assets.

Question 8

Negative goodwill -

Answer 8

Where an acquiring entity pays less for a business than the fair value of its separable net assets, the negative goodwill created is immediately recognised as income in the statement of profit or loss.

Question 9

Research is

Answer 9

original and planned investigation to gain new scientific knowledge or understanding.

Question 10

Development is

Answer 10

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

Question 11

Accounting treatment of R&D -
Research expenditure is
Development expenditure is

Answer 11

written off as incurred to the statement of profit or loss.

capitalised only once all the recognition criteria are satisfied.

Question 12

Recognition criteria of R&D

Answer 12

PIRATE -

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

Question 13

Amortisation of development expenditure commences

Answer 13

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

Question 14

For an asset to be identifiable IAS 38 Intangible Assets states that it must fall into one of two categories:

Answer 14

1 It is separable – the asset can be bought or sold separately from the rest of the business
2 It arises from legal/contractual rights – this will arise as part of purchasing an entire company. This will be looked at further in the consolidated financial statements chapters.

Question 15

An intangible asset with an indefinite useful life:

Answer 15

 should not be amortised
 should be tested for impairment annually, and more often if there is an actual indication of possible impairment.

Question 16

As a guide, indicators of an active market would include:

Answer 16

 the items traded within the market are homogeneous (identical)
 prices are available to the public.

Question 17

Goodwill is the difference between the

Answer 17

the value of a business as a whole
and the aggregate of the fair values of its separable net assets.