Lesson 6

Question 1

Intangible assets

Answer 1

is an identifiable non-monetary asset without physical substance

Question 2

What are the two main characteristics of intangible assets?

Answer 2

1. They lack physical existence.
2. They are not financial instruments.

Question 3

What is a basket purchase of intangibles?

Answer 3

When a company buys several intangibles or a combination of intangibles and tangibles.

Question 4

What costs should companies capitalize for internally created intangibles?

Answer 4

Companies capitalize only direct costs incurred in developing the intangible, such as legal costs, and expense the rest.

Question 5

What is the allocation of the cost of intangible assets called?

Answer 5

Amortization.

Question 6

What kind of lives do intangible assets have?

Answer 6

Limited (finite) useful life or indefinite useful life.

Question 7

Limited (finite) useful life

Answer 7

Intangible assets with a foreseeable limit on the period of time over which the intangible assets are expected to provide cash flows.

Question 8

Indefinite useful life

Answer 8

Intangible assets with no foreseeable limit on the period of time over which the intangible assets are expected to provide cash flows.

Question 9

Residual value

Answer 9

is the remaining value of an asset after it has been fully depreciated.

Question 10

What are the two impairment tests for an asset?

Answer 10

1. Recoverability test
2. Fair value test

Question 11

What is true regrading a purchased limited life intangible asset?

Answer 11

It is amortized; tested for recoverability test, and fair value tested.

Question 12

How often are limited life intangible assets tested.

Answer 12

annually

Question 13

How are costs incurred internally to created intangibles treated?

Answer 13

They are expensed as incurred.
Because costs of creating intangibles internally cannot easily be associated with a specific intangible.