Intangible Assets

Question 1

What is IAS38?

Answer 1

Intangible assets

Question 2

Whats the definition of an intangible asset?

Answer 2

An identifiable non-monetary asset without physical substance

Question 3

Do intangible assets have their own accounting standards?

Answer 3

no

Question 4

What is a monetary asset?

Answer 4

financial assets that are easily convertible to cash

e.g. cash, savings accounts, debtors

Question 5

An intangible asset is identifiable if it is…

Answer 5

• separable, i.e. capable of being separated from the entity and sold or transferred. licensed, rented and exchanged
  OR
• arises from contractual or other legal rights

Question 6

When is an intangible asset recognised?

Answer 6

If it is;
- identifiable
- controlled
- potential economic benefits (R&D)
- its cost must be measurable

HAS TO MEET ALL 4 REQUIREMENTS!!!!

Question 7

Under the cost model, if the book value is lower than the fair value, can you increase the book value?

Answer 7

No. But if it is opposite then you can decrease the BV

Question 8

Under the revaluation model, if the book value is lower than the fair value, can you increase the book value?

Answer 8

Yes, but you cant recognise it as income because of prudence so it goes into the revaluation reserve

Question 9

Whats an example of something that has no economical benefit?

Answer 9

SOME COVID-19 vaccines
All companies who developed vaccines that didn’t get approved
Development was an expense

Question 10

If a cost isnt recognised in the balance sheet, where does it go?

Answer 10

It goes as an expense in the income statement

Question 11

What are some examples of things that are NOT intangible assets (out of things you’d expect)?

Answer 11

Internally generated goodwill
Start-up costs
Training costs
Advertising costs
Market research
Research & Development
Relocation, reorganisation costs
Anything internally generated

Question 12

Are customers intangible?

Answer 12

No, because you cant control them

Question 13

Is a team of skilled staff intangible?

Answer 13

Unless it is protected by legal right to use them and obtain future economic benefits, no. Because you cant really control the expected economic benefits

Question 14

Is goodwill an intangible asset?

Answer 14

As long as it’s not internally generated, it is one of the main intangible assets

Question 15

Why is internally generated goodwill not recognised as an intangible asset?

Answer 15

Because there’s no evidence and it cant be measured reliably

Question 16

If internally generated goodwill isn’t tested for impairment, what happens to it?

Answer 16

It’s amortised

Question 17

When should amortisation start?

Answer 17

When the asset is available for use

Question 18

What should the amortisation method reflect?

Answer 18

The pattern in which the asset’s future economic benefits are consumed

Question 19

What is amortisation?

Answer 19

When you spread out the cost of something over time to match how long it will help the business.

Question 20

If the pattern in which the asset’s future economic benefits are consumed can’t be predicted reliably, what should you do instead if amoritise?

Answer 20

Use the straight-line method

Question 21

Where should the amortisation charge for each period be recognised?

Answer 21

in profit or loss

Question 22

Should an intangible asset with an indefinite useful life be amortised?

Answer 22

No, it should be tested for impairment annually

Question 23

How do you calculate amortisation?

Answer 23

Cost/useful life

Question 24

What should expenditure on research recognised as?

Answer 24

An expense when its incurred

Question 25

Why is development an asset?

Answer 25

Because future benefits are expected

Question 26

When will an intangible asset arising from development be recognised?

Answer 26

When;
- you are able to finish developing the asset so it can be sold or available for use
- intention to complete the intangible asset and use or sell it
- ability to use or sell using the intangible asset
- how it will generate probably future economic benefits
- availability of adequate technical, financial, and other resources to complete the development to use or sell the intangible asset
- the ability to measure the expenditure attributable reliably during its development

IF ALL THIS CRITERIA ISNT MET, IT IS AN EXPENSE

Question 27

What are some examples of development activities?

Answer 27

• design, construction and testing of pre-production or pre-use prototypes and models
• design of tools, jigs, moulds and dyes involving new technology
• design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services

Question 28

If an intangible asset in a class of revalued intangible assets cant be revalued due there being no active market for it, how should it be carried?

Answer 28

cost
less acc amortisation
less impairment loss

Question 29

Regarding the revaluation model, what should the fair value be able to be measured reliably in reference to?

Answer 29

an active market in that type of asset

Question 30

Under the revaluation model, what should be done to prevent selective revaluations?

Answer 30

the entire class of intangible assets of the same type must be revalued at the same time

Question 31

Revaluations should be done so regularly that…

Answer 31

the carrying amount doesn’t differ from the fair value at the end of the reporting period

Question 32

If an asset’s carrying amount is increased to match the fair value, where should the revaluation be credited to?

Answer 32

Equity, under the heading of revaluation surplus

Question 33

If the revaluation is a reversal of a revaluation decrease that was previously charged against income, where would it be recognised?

Answer 33

as income

Question 34

If the carrying amount of an intangible asset is decreased to match its fair value, what should it be charged as?

Answer 34

Expense, UNLESS it has already been increased.

Question 35

If an intangible asset’s carrying amount was once increased to match its fair value, but now it needs to be decreased, what would you do?

Answer 35

Charge the revaluation decrease against any previous revaluation surplus