Unit 4: Intangible Assets Flashcards
IAS N (Intangible Assets) states that, “in determining whether an asset that incorporates both intangible and tangible elements should be treated under IAS 16 Property, Plant and Equipment or as an intangible asset under this Standard, an entity uses judgement to assess which element is more significant.”
Ergo: when the software is not an integral part of the related hardware, computer software is treated as an intangible asset.
IAS 38; True.
By definition, an asset is a resource that is:
a) controlled by an entity as a result of past events; and
b) from which future economic benefits are expected to flow to the entity.
_______ is the cost of an asset, or other amount substituted for cost, less its residual value.
Depreciable amount
________ is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
Development
An intangible asset will be recognized iff:
(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
(b) the cost of the asset can be measured reliably.
[elements of identifiability, control, and future economic benefits]
Legal enforceability of a right is not always a necessary condition for control since an entity may be able to control the future economic benefits in some other way.
True.
One method of keeping control (for IA) is keeping something secret through employee confidentiality.
True.
The definition of an intangible asset requires an intangible asset to be identifiable to distinguish it from _____.
goodwill.
When is an asset identifiable?
(a) is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or
(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
Goodwill does not generate cash flows independently from other assets or group of assets, and therefore, the RA of goodwill as an individual asset cannot be determined.
True.
[T/F] If another Standard prescribes the accounting for a specific type of intangible asset, an entity applies that Standard instead of this Standard. As such, this Standard does not apply to:
(a) intangible assets held by an entity for sale in the ordinary course of business,
(b) deferred tax assets, and
(c) goodwill acquired in a business combination.
True.
Rights held by a lessee under licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights are within the scope of this Standard (IAS 38 - Intangible Assets) and are excluded from the scope of IFRS 16.
True.
_____ is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
Entity-specific value
How are intangible assets defined in IAS 38?
An intangible asset is an identifiable (separable and/or arises from contractual or other legal rights) non‑monetary asset without physical substance.
An asset is identifiable if it either…
(a) is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or
(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
What is the best evidence of fair value?
Quoted price in an active market for an identical asset.
If the FV less cost of disposal cannot be determined,
(a) the asset is not impaired
(b) the RA is the value in use
(c) the net realizable value is used
(d) the CA of the asset remains the same
(b) the RA is the value in use
Which of the following are capitalizable as part of an IA?
a) costs of introducing a new product/service, including cost of promotional activites
b) costs of conducting business in a new location
c) admin and other general OH costs
d) costs incurred while an asset capable of operating in a manner intended has yet to be brought into use
e) initial operating losses
All aforementioned costs are not capitalizable and are expensed immediately.
The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the ________, if any, and the of the asset.
net disposal proceeds; carrying amount
An intangible asset with an indefinite useful life shall not be amortised.
True.
An entity is required to test an intangible asset with an indefinite useful life for impairment by comparing its recoverable amount with its carrying amount every: (a), (b).
a) annually, and
b) whenever there is an indication that the intangible asset may be impaired.
Amortisation is usually recognised in profit or loss. However, sometimes the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the amortisation charge constitutes part of the cost of the other asset and is included in its carrying amount. [IAS 38 - IA]
True.
IA acquired in an exchange is measured at FV unless the transaction lacks commercial substance. If this is the case, the IA is not measured at FV but its cost would be the ________.
CA of asset given up
The following expenditures [are/aren’t] components of the cost of an internally-generated IA:
a) selling, admin, and other general OH, unless this can be directly attributed to preparing the asset for use
b) clearly identified inefficiencies and initial operating losses incurred before an asset achieves planned performance
c) expenditure on training staff to oeprate the asset
are not (i.e., do not capitalize!)
______ is the present value of future cash flows expected to be derived from an asset.
Value in use
A patent can’t be renewed but its life can be extended beyond the legal life (20 years) by a new patent for improvements and changes.
True.
Which of the following statements are false?
I. Goodwill standing alone can’t be bought and sold. This can only be identified with the entity as a whole.
II. Developed goodwill (i.e., internally generated), unlike purchased goodwill, is recorded as an asset.
III. Purchased goodwill is recognized as an asset because it’s been paid for.
II. Developed goodwill is not recorded.
[T/F] Given that IAs are identifiable, an IA is inherent in a continuing business and can only be identified with the entity as a whole, save for goodwill.
True.
[T/F] An IA can only be carried at revalued amount if there is an active market for the asset.
True.
The residual value of an IA shall be presumed to be zero, except when…
a) when a third party is committed to buy the IA at the end of its UL, or
b) when there is an active market for the IA so that its expected residual value can be measured and it’s probable that there will be a market for the IA at the end of its UL.
Which of the ff statements about IA is true?
a) internally-generated brands, mastheads and such shall not be recognized as intangible assets;
b) the cost of internally generated intangible asset comprises all directly attributable cost necessary to create, produce and prepare the asset for its intended use.
Both statements are true.
All of the following expenditures shall be expensed when incurred, except:
a) start-up costs
b) advertising and promotion costs
c) business relocation or reorganization costs
d) payment in advance of delivery of goods or the rendering of services
d) payment in advance of delivery of goods or the rendering of services.
A brand name that was acquired separately shall intially be recognized at:
a) RA
b) either cost of FV at the choice of the acquirer
c) FV
d) cost
d) cost.
[T/F] In practice, it is often dificult to estimate the number of years in which benefits from copyrights are received. Thus, it is usually advisable to write off instead the cost of the copyright against the revenue of the first printing.
True.
The term for protection of copyright is…
during the lifetime of the author, and for 50 years after death.
Goodwill should be tested periodically for impairment:
a) for the entity as a whole
b) at the subsidiary level
c) at the industry segment level
d) at the operating segment level or one level below
d) at the operating segment level or one level below.
Which of the following is not an example of a research activity?
a) lab research aimed at discovering or obtaining new knowledge
b) searching for application of research finding and other knowledge
c) conceptual formulation and design of possible product alternatives
d) testing in search or evaluation of product or process alternatives
e) design, construction and testing of preproduction of prototypes and models
E. The design, construction and testing of preproduction of prototypes and models is an example of a development activity.
