Problem 40-1 Multiple Choice (PAS 38)

1. An intangible asset is defined as

a. An identifiable asset without physical substance.
b. A nonmonetary asset without physical substance.
c. An identifiable nonmonetary asset without physical substance.
d. An identifiable monetary and nonmonetary asset without physical substance.
2. An intangible asset is identifiable when
a. It is separable.
b. It arises from contractual and other legal right.
c. It is either separable or it arises from contractual and other legal right.
d. It is neither separable nor it arises from contractual and other legal right.
3. Which of the following statements is true in relation to control by the entity of the
intangible asset?
a. The capacity of the entity to control the economic benefits from an intangible
asset would normally stem from legal rights that are enforceable in a court of law.
b. The skill of employees arising out of the benefits of training costs cannot be
recognized as intangible asset.
c. Market share and customer loyalty cannot normally be recognized as intangible
asset because an entity cannot control the action of customers.
d. d. All of these statements are true.
4. An intangible asset shall be recognized if
a. It is probable that future economic benefits attributable to the asset will flow to
the entity.
b. The cost of the intangible asset can be measured reliably.
c. It is possible that future economic benefits attributable to the asset can be
measured reliably.
d. It is probable that future economic benefits attributable to the asset can be
measured reliably.
5. Which of the following statements is true concerning separate acquisition of an intangible
asset?
a. If an intangible asset is required separately, the cost of the intangible asset can
usually be measured reliably.
b. If payment for an intangible asset is deferred beyond normal credit terms, the cost
is equal to the cash price equivalent.
c. The cost of a separately acquired intangible asset comprises the purchase price
and any directly attributable cost of preparing the asset for the intended use.
d. All of these statements are true.
6. Which of the following statements is incorrect concerning acquisition of an intangible
asset as part of a business combination?
a. The cost of the intangible asset is based on the fair value at the date of acquisition.

b. If there is an active market for the intangible asset, the fair value is equal to the
quoted price of an identical asset.
c. If there is an active market for the intangible asset, the fair value may also be
equal to the quoted price of a similar asset.
d. The fair value of an identifiable intangible asset acquired in a business
combination cannot be measured with sufficient reliability separately from
goodwill.
7. Which of the following statements is truein relation to internally generated intangible
asset?
a. Internally generated brand, masthead, publishing title, and customer list shall not
be recognized as an intangible asset.
b. The cost of internally generated intangible asset comprises all directly attributable
costs necessary to create, produce and prepare the asset for the intended use.
c. Internally generated goodwill shall not be recognized as an intangible asset.
d. All of these statements are true.
8. The cost of an internally generated intangible asset includes all of the following, except
a. Expenditure on materials used in generating the intangible asset.
b. Compensation costs of personnel directly engaged in generating the asset.
c. Fees to register a legal right.
d. Expenditure to on training staff to operate asset.
9. All of the following expenditures are expensed when incurred, except
a. Startup 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.
10. Which of the following statements is true concerning amortization and impairment of
intangible assets?
a. Intangible assets with finite useful life are amortized over the useful life.
b. Intangible assets with finite useful lifer are tested for impairment at the end of
reporting period when there is an indication of impairment.
c. Intangible assets with indefinite useful life are not amortized but are tested for
impairment at least annually.
d. d. All of these statements are true.
Answers: Problem 40-1
1. C
2. C
3. D
4. D
5. D

6. D
7. D
8. D
9. D
10. D

Problem 40-2 Multiple Choice (PAS 38)

1. It is the systematic allocation of the amortizable amount of an intangible asset over the
useful life.
a. Amortization
b. Allocation
c. Realization
d. Expiration
2. The amortization method used shall reflect the pattern in which the assets economic
benefits are consumed by the entity. If such pattern cannot be determined reliably, what is
the amortization method used?
a. Straight line
b. Production method
c. Diminishing balance method
d. Ratio of current years sales to the expected sales
3. The factors that need to be considered in determining the useful life of an intangible asset
include all of the following, except
a. Technical obsolescence
b. Expected action of competitors
c. Expected usage of the asset by the entity
d. Residual value
4. An intangible asset is regarded as having an indefinite useful life when
a. There is no foreseeable limit to the period over which the asset is expected to
generate net cash inflows to the entity.
b. There is a foreseeable limit to the period over which the asset is expected to
generate net cash inflows to the entity.
c. The useful life of the intangible asset arises from contractual right.
d. The useful life of the intangible asset arises from legal right.
5. The residual value of an intangible asset with a finite useful life shall be assumed zero,
except
a. When there is a commitment by a third party to purchase the asset at the end of
the useful life.
b. When there is an active market for the asset and it is probable that such market
will exist at the end of the useful life.
c. When there is a commitment by a third party to purchase the asset at the end of
the useful life or there is an active market for the asset and it is probable that such
market will exist at the end of useful life.
d. There are no exceptions.
6. An intangible asset acquired by way of government grant may be initially recorded at
a. Fair value
b. Nominal amount or zero plus any directly attributable expenditure
c. Either fair value or nominal amount or zero plus directly attributable expenditure.

d. Neither fair value nor nominal account.

7. The cost of a separately acquired intangible asset comprises the purchase price, including
import duties and nonrefundable purchases taxes, and
a. Cost of introducing a new product or service.
b. Cost of conducting a business in a new location.
c. Administration and other general overhead cost
d. Directly attributable cost of preparing the asset for the intended use.
8. Directly attributable costs of preparing the intangible asset for the intended use include
all, except
a. Cost of employee benefits arising directly from bringing the asset to working
condition.
b. Professional fee arising directly from bringing the asset to working condition.
c. Cost of testing whether the asset is functioning properly.
d. Initial operating loss.
9. After initial recognition, an intangible asset shall be measured using the
a. Cost model
b. Revaluation model
c. Either cost model or revaluation model
d. Either cost model or fair value model
10. Which of the following represents the maximum amortization period mandated for an
intangible asset with finite useful life?
a. 10 years
b. 20 years
c. 40 years
d. No arbitrary cap on the useful life has been established.
Answers: Problem 40-2
1. A
2. A
3. D
4. A
5. C

6. C
7. D
8. D
9. C
10. D

Problem 40-3 Multiple Choice (IFRS)

1. Which does not qualify as an intangible asset?
a. Computer software
b. Registered patent
c. Copyright
d. Notebook computer

2. Which of the following would qualify as an intangible asset?

a. Advertising and promotion
b. College tuition fees paid to employees who decide to enroll in an exclusive
M.B.A program while working with the entity
c. Operating loss during the initial stage of the project
d. Legal cost paid to lawyer to register a patent
3. Once recognized, an intangible asset can be carried at
a. Cost less accumulated amortization
b. Cost less accumulated amortization and impairment losses
c. Revalued amount less accumulated amortization
d. Cost plus a notional increase in fair value
4. Which disclosure is not required with respect to an intangible asset?
a. Useful life of the intangible asset
b. Reconciliation of carrying amount at the beginning and end of the year
c. Contractual commitment for the acquisition of intangible asset
d. Fair value of similar intangible asset used by competitor
5. Which is not a consideration in determining the useful life of an intangible asset?
a. Legal, regulatory or contractual provision
b. Provision for renewal or extension
c. Initial cost
d. Obsolescence
6. Amortization of an intangible asset with a finite useful life shall commence when
a. It is first recognized as an asset.
b. It is probable that it will generate economic benefit.
c. It is available for intended use.
d. The cost can be identified with reasonable certainty.
7. A brand name that was acquired separately shall initially be recognized at
a. Recoverable amount
b. Either cost or fair value at the choice of the acquirer
c. Fair value
d. Cost
8. The recognition criteria for an intangible asset include which of the following conditions?
a. The intangible asset must be measured at cost.
b. The cost can be measured reliably.
c. It is probable that future economic benefit will arise from use.
d. It is probable that future economic benefit will arise from use and the cost can be
measured reliably.
9. What is the appropriate method of amortizing intangible asset?

a. The straight line method, unless the pattern in which the economic benefits are
consumed can be determined reliably.
b. The double declining balance in all circumstances.
c. A subjective amount of periodic amortization.
d. The straight liner method in all circumstances.
10. Intangible assets with indefinite useful life are tested for impairment
a. Quarterly at the quarterly reporting date
b. Annually at the annual reporting date
c. Biannually at the reporting date
d. There is no guidelines for impairment
Answers: Problem 40-3
1. D
2. D
3. B
4. D
5. C

6. C
7. D
8. D
9. A
10. B

Problem 40-4 Multiple Choice (IFRS)

1. Intangible assets are reported in the statement of financial position
a. With an accumulated amortization account
b. Under property, plant and equipment
c. As a separate line item
d. All of these are allowed in presenting intangible assets
2. An entity that acquires an intangible asset may use the revaluation model for subsequent
measurement only if
a. The useful life of the intangible asset can be reliably determined
b. An active market exists for the intangible asset.
c. The cost of the intangible asset can be measured reliably.
d. The intangible asset is a monetary asset.
3. Which of the following is a criterion that must be met in order for an intangible asset to
be recognized other than goodwill?
a. The fair value can be measured reliably.
b. The asset is the part of the activities aimed at gaining new scientific or technical
knowledge.
c. The asset is expected to be used in the production or supply of goods or services.
d. The asset is identifiable and lacks physical substance.
4. Operating losses incurred during the start-up years of a new entity should be
a. Accounted for and reported like any other operating losses.

b. Written off directly against retained earnings.

c. Capitalized as deferred charge and amortized over five years.
d. Capitalized as an intangible asset and amortized over twenty years.
Answers: Problem 40-4
1. C
2. B
3. D
4. A
Problem 40-5 Multiple Choice (IAA)
1. Which of the following does not describe an intangible asset?
a. The asset lacks physical existence.
b. The asset is monetary.
c. The asset provides long-term benefit.
d. The asset is classified as non-current asset.
2. Which of the following is a characteristic of an intangible asset?
a. Physical existence
b. Claim to a specific amount of cash in the future
c. Long-lived
d. Held for sale
3. Cost incurred internally to create intangible asset are
a. Capitalized
b. Capitalized if useful life is indefinite
c. Expensed when incurred
d. Expensed if useful life is limited
4. Which of the following methods of amortization is normally used for an intangible asset?
a. Sum of the years digit
b. Straight line
c. Units of production
d. Double declining balance
5. Under current accounting practice, intangible assets are classified as
a. Amortizable and un-amortizable
b. Limited life and indefinite life
c. Specifically identifiable and goodwill type
d. Legally restricted and goodwill type
6. Which type of intangible asset is amortized?
a. Limited life

b. Indefinite life
c. Both limited life and indefinite life
d. Neither limited life nor indefinite life
7. Entities should evaluate indefinite life intangible assets at least annually for
a. Recoverability
b. Amortization
c. Impairment
d. Estimated useful life
8. The major problem of accounting for an intangible asset is determining
a. Fair value
b. Separability
c. Residual value
d. Useful life
9. The factors in determining the useful life of an intangible asset include all of the
following, except
a. The expected use of the asset.
b. Any legal or contractual provision that may limit the useful life.
c. Any provision for renewal or extension of legal life of the asset.
d. The amortization method used.
10. Which of the following is not an intangible asset?
a. Trade name
b. Research and development cost
c. Franchise
d. Copyright
Answers: Problem 40-2
1. B
2. C
3. C
4. B
5. B

6. A
7. C
8. D
9. D
10.B

Problem 41-1 Multiple Choice (IAA)

1. Patent is an example of which general category of intangible asset?
a. Market-related
b. Customer-related
c. Artistic-related
d. Technology-based

2. A patent should be amortized over

a. Twenty years
b. The useful life
c. The useful life or twenty years, whichever is longer
d. The useful life or twenty years, whichever is shorter
3. When a patent is amortized, the credit is usually made to
a. The patent account
b. An accumulated amortization account
c. An accumulated depreciation account
d. The expensed account
4. The cost of successfully depending a patent from infringement by a competitor should be
charged to
a. Patent and amortized over the legal life of the patent.
b. Legal fees and amortized over five years.
c. Expensed of the period.
d. Amortized over the remaining useful life of the patent.
5. The cost of purchasing right for a product that might otherwise have seriously competed
with the purchasers patented product should be
a. Expensed in the current period.
b. Amortized over the legal life of the purchased patent.
c. Added to factory overhead.
d. Amortized over the remaining useful life of the patent for the product whose
market would have been impaired be competition from the newly patented
product.
Answers: Problem 41-1
1. D
2. D
3. A
4. C
5. D
Problem 41-2 Multiple Choice (AICPA Adopted)
1. Goodwill shall be recognized only when
a. It is purchased from another entity
b. It can be established that a definite benefit has resulted from good name, capable
staff or reputation
c. It is acquired through the purchase of another entity
d. An entity had above normal earnings for five years

2. What does the standard require with respect to accounting for goodwill?
a. Goodwill should be amortized over a five-year period.
b. Goodwill should be amortized over the useful life.
c. Goodwill should be recorded and never adjusted.
d. Goodwill should be periodically evaluated for impairment.
3. 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
4. In performing an annual test for the impairment of goodwill for a cash generating unit,
the fair value of the unit exceeds the carrying amount. Which statement is true concerning
the test of impairment?
a. Impairment is not indicated and no analysis is necessary.
b. Goodwill should be written down as impaired.
c. The assets should be valued to determine if there has been an impairment of
goodwill.
d. Goodwill should be retested at the entity level.
5. An impairment loss recognized for goodwill
a. Shall not be reversed in a subsequent year.
b. May be reversed fully in a subsequent year.
c. May be reversed partly in a subsequent year.
d. Shall be reversed in a subsequent year.
Answers: Problem 41-2
1. C
2. D
3. D
4. A
5. A
Problem 41-3 Multiple Choice (IAA)
1. Purchased goodwill should
a. Be written off against retained earnings.
b. Be written off as other expense.
c. Be written off by systematic charge as operating expense over the period
benefited.
d. Not be amortized.
2. The intangible asset goodwill may be

a.
b.
c.
d.

Capitalized only when purchased.

Capitalized either when purchased or created internally.
Capitalized only when created internally.
Written off directly against retained earnings.

3. In a business combination, the excess of acquisition cost over the fair value of the
identifiable net assets acquired is
a. Other asset
b. Indirect cost
c. Goodwill
d. A bargain purchase
4. Goodwill shall be tested for impairment
a. If there is an indication of impairment
b. Annually
c. Every 5 years
d. On the acquisition of a subsidiary
5. Which intangible asset should be reported as a separate line item in the statement of
financial position?
a. Goodwill
b. Franchise
c. Patent
d. Trademark
Answers: Problem 41-3
1. D
2. A
3. C
4. B
5. A
Problem 41-4 Multiple Choice (IAA)
1. A trademark is an example of which general category of intangible asset?
a. Market-related
b. Customer-related
c. Artistic-related
d. Contract-based
2. Which of the following costs associated with a trademark should not be capitalized?
a. Attorney fee
b. Consulting fee
c. Research and development fee

d. Design cost
3. Which of the following should not be capitalized as cost of trademark?
a. Cost of successful litigation of the trademark
b. Registration with Intellectual Property Office
c. Design cost
d. Legal fee
4. What is the legal life of trademark?
a. 10 years
b. 20 years
c. 10 years and renewable after every 10 years
d. 20 years and renewable after every 20 years
5. Which of the following statements is incorrect in relation to trademark?
a. A trademark can be regarded as an intangible asset with an indefinite useful life.
b. A trademark is an intangible asset.
c. A trademark is not amortized but tested for impairment at least annually.
d. A trademark is amortized and tested for impairment whenever there is an
indication of impairment.
Answers: Problem 41-4
1. A
2. C
3. A
4. C
5. D
Problem 42-1 Multiple Choice (IAA)
1. A copyright is an example of which general category of intangible asset?
a. Market-related
b. Customer-related
c. Artistic-related
d. Contract-based
2. Franchise and broadcast rights are an example of which general category of intangible
asset?
a. Market-related
b. Customer-related
c. Artistic-related
d. Contract-based

3. Customer list and order backlog are an example of which general category of intangible
asset?
a. Market-related
b. Customer-related
c. Artistic-related
d. Contract-based
4. Copyright should be amortized over
a. The legal life
b. The life of the creator plus fifty years
c. Twenty years
d. The useful life or legal life, whichever is shorter
5. Which of the following intangible assets should not be amortized
a. Copyright
b. Customer list
c. Perpetual franchise
d. All of the intangible assets should be amortized
6. Which of the following should be expensed as incurred by the franchisee for a franchise
with finite useful life?
a. Amount paid to the franchisor for the franchise
b. Payment to an entity, other than the franchisor, for that entitys franchisee
c. Legal fees paid to the franchisees lawyers to obtain the franchise
d. Periodic payments to the franchisor based on the franchisees revenue
7. An airline entity purchased airline gate rights at an international airport with a legal life
of five years. However, the entity has the ability and right to extend the rights every ten
years for an indefinite period of time. Over what period of time should the entity amortize
the gate right?
a. 5 years
b. 15 years
c. 40 years
d. The rights should not be amortized
8. A lessee incurred cost to construct walkway and landscaping to improve leased property.
The useful life of the walkway and landscaping cost is fifteen years. The remaining term
of the non-renewable lease is twenty years. The walkway and landscaping cost should be
a. Capitalized as leasehold improvement and depreciated over twenty years.
b. Capitalized as leasehold improvement and depreciated over fifteen years.
c. Capitalized as leasehold improvement and expensed in the year in which the lease
expires.
d. Expensed as incurred.
9. Start-up cost including legal and state fees to organize a new entity should be
a. Capitalized and never amortized.

b. Capitalized and amortized over a reasonable period.

c. Capitalized and tested for impairment annually.
d. Expensed as incurred.
Answers: Problem 42-1
1. C
6. D
2. D
7. D
3. B
8. D
4. D
9. D
5. C

Problem 42-2 Multiple Choice (IFRIC 12)

1. 1. It is an arrangement whereby a public sector entity grants a private concession operator
to provide services that give the public access to major economic and social
infrastructure, such as expressway and telecommunication network.
a. Service concession
b. Loan
c. Government grant
d. Government assistance
2. The private concession operator shall recognize the infrastructure asset as
a. Intangible asset
b. Financial asset
c. Either intangible asset or financial asset
d. Neither intangible nor financial asset
3. The infrastructure asset shall be recognized by the concession operator as an intangible
asset when
I.
The operator has received a right or a license to charge users for the public service.
II.
The right to change the users for the public service is not an unconditional right
because the revenue receivable is not agreed upon in advance but is dependent on the
use of the asset.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
4. The infrastructure asset shall be recognized by the concession operator as a financial
asset when
I.
The operator has an unconditional contractual right to receive cash over the life of the
arrangement.
II.
The grantor has contractually guaranteed to pay the operator the specified or
determinable amount.
a. I only

b. II only
c. Both I and II
d. Neither I nor II
5. The infrastructure asset recognized by the private concession operator as a financial asset
should be accounted for as
a. Financial asset at amortized cost
b. Financial asset at fair value through profit or loss
c. Either financial asset at amortized cost or financial asset at fair value through
profit or loss
d. Neither financial asset at amortized cost nor financial asset at fair value through
profit or loss
Answers: Problem 42-2
1. A
2. C
3. C
4. C
5. C

Problem 43-1 Multiple Choice (IFRS)

1. Which statement in relation to research and development is incorrect?
a. Expenditure during the research phase of a project cannot be capitalized as an
intangible asset
b. Expenditure during the development phase of project may sometimes be
capitalized as an intangible asset
c. The project being developed should have already been put into commercial
production
d. Development involves the application of research finding
2. A dot-com entity has recently completed a highly publicized research and development
project. Which of the following statements is the most accurate?
a. Costs incurred during the research phase can be capitalized.
b. Costs incurred during the development phase can be capitalized if criteria such as
technical feasibility of the project being established are met.
c. Training cost of technicians used in research can be capitalized.
d. Designing of jigs and tools would qualify as research activities.
3. Which principle best describes the current method of accounting for research and
development cost?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization

d. Immediate recognition as an expense

4. Web site development costs incurred for the purpose of promoting and advertising a
project should be
a. Expensed as incurred
b. Recognized as an intangible asset with a finite life
c. Recognized as an intangible asset with indefinite life
d. Included as component of other comprehensive income
Answers: Problem 43-1
1. C
2. B
3. D
4. A

Problem 43-2 Multiple Choice (AICPA Adopted)

1. The proper accounting for costs incurred in creating computer software is
a. To capitalize all costs until the software is sold
b. To charge research and development expense when incurred until technological
feasibility has been established for the product
c. To charge research and development expense only if the computer software has
alternative future use.
d. To capitalize all cost as incurred until a detailed program design or working model
is created.
2. Which of the following statements is true regarding the proper accounting treatment for
internal-use software costs?
I.
Preliminary costs should be capitalized as incurred.
II.
Application and development costs should be capitalized as incurred
a. I only
b. II only
c. Both I and II
d. Neither I nor II
3. Which of the following statements is incorrect regarding internal-software?
a. The application and development costs of internal-use software should be
amortized on the straight line basis unless another systematic and rational basis is
more appropriate.
b. Internal-use software is considered to be software that is marketed as a separate
product or as part of a product or process.
c. The costs of testing and installing computer hardware should be capitalized as
incurred.
d. The costs of training and application maintenance should be expensed as incurred.

4. A computer software purchased as an operating system for the hardware or as an integral

part of a computer controlled machine tool that cannot operate without the specific
software shall be treated as
a. Intangible asset
b. Property, plant and equipment
c. Inventory
d. Expense
5. At the beginning of current year, an entity had capitalized cost for a new computer
software product with an economic life of four years. Sales for the current year were ten
percent of expected total sales of the software. The pattern of future sales cannot be
measured reliably. At year-end, the software had a net realizable value equal to eighty
percent of the capitalized cost. Thee unamortized cost reported in the year end statement
of financial position should be
a. Net realizable value
b. Ninety percent of net realizable value
c. Seventy five percent of capitalized cost
d. Ninety percent of capitalized cost
Answers: Problem 43-2
1. B
2. B
3. B
4. B
5. C

Problem 43-3 Multiple Choice (AICPA Adopted)

1. Which of the following research and development costs should be capitalized and
amortized over current and future periods?
a. Research and development general laboratory building
b. Inventory used for a specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another entity to aid a particular research
project currently in process
2. If an entity constructs a laboratory building to be used as a research and development
facility, the cost of the laboratory building is matched against earnings as
a. Research and development expense in the period of construction
b. Depreciation deducted as part of research and development expense
c. Depreciation or immediate write-off depending on entity policy
d. An expense at such time as productive research has been obtained from the
facility.

3. Which of the following research and development costs should be capitalized and
amortized over current and future periods?
a. Labor and material costs incurred in building a prototype or model
b. Cost of testing equipment that will also be used in another separate research and
development project scheduled to begin next year
c. Administrative salaries allocated to research and development
d. Research findings purchased from another entity to aid a particular research
project currently in process
4. A research and development activity for the cost would be expensed as incurred is
a. Design, construction and testing of preproduction prototype or model
b. Quality control during commercial production
c. Periodic design changes to existing product
d. Adaptation of an existing capability to a particular requirement or customer need
5. 5. Which is not considered a research and development activity?
a. Routine ongoing effort to refine, enrich or improve quality of existing product
b. Laboratory research aimed at discovery of new knowledge
c. Conceptual formulation and design of possible product or process
d. Design, construction and operation of a pilot plant.
6. At the beginning of current year, an entity purchased equipment for use in developing a
new product. The entity used the straight line depreciation method. The equipment could
provide benefits over a 10-year period. However the new product development is
expected to take five years, and the equipment can be used only for this project. The
expense for the current year in relation to the equipment equals
a. The total cost of the equipment
b. One-fifth of the cost of the equipment
c. One-tenth of the cost of the equipment
d. Zero
Answers: Problem 43-3
1. A
2. B
3. D
4. A
5. A
6. A

Problem 43-3 Multiple Choice (IAA)

1. How should research and development be accounted for?
a. Must be capitalized when incurred and then amortized over useful life

b. Must be expensed in the period incurred

c. May be either capitalized or expensed when incurred depending upon the
materiality
d. Must be expensed in the period incurred unless it can be clearly demonstrated that
the expenditure will have alternative future use or unless contractually
reimbursable
2. Which of the following statements is true about accounting for development cost?
a. Development cost must be expensed
b. Development cost is always deferred and expensed against future revenue
c. Development may be capitalized as an intangible asset in very restrictive
situations
d. Development cost is recorded as component of other comprehensive income
3. Which of the following would be considered research and development?
a. Routine effort to refine an existing product
b. Periodic alteration to existing production line
c. Marketing research to promote new product
d. Construction of prototype
4. 4. Which of the following cost should not be capitalized?
a. Acquisition cost of equipment cost to be used on current and future research
projects
b. Engineering cost incurred to advance the project to the full production stage
c. Cost incurred to file for patent
d. Cost of testing prototype before economic feasibility has been demonstrated
5. Which of the following cost should be excluded from research and development expense?
a. Modification of the design off a product
b. Acquisition of research and development equipment for the use on a current
project only
c. Cost of marketing research for a new product
d. Engineering activity required to advance the design of a product to the
manufacturing stage.
6. Which of the following would not be considered research and development activity?
a. Adaptation of an existing capability to a particular requirement or customer need
b. Application of research finding or other knowledge to a plan for a new product
c. Laboratory research aimed at discovery of new knowledge
d. Conceptual formulation and design of possible product alternative
7. Which of the following is not a criterion which must be met before development cost
may be capitalized?
a. The entity has sufficient financial resources to complete the project
b. The entity intends to complete the project and either use or sell the intangible
asset

c. The entity can reliably identify the research cost incurred to bring the project to
economic feasibility
d. The project has achieved technical feasibility
8. Which of the following costs should be capitalized?
a. Acquisition cost of equipment to be used on the current research project only
b. Engineering cost incurred to advance the product to the full production stage
c. Cost of research to determine whether a market for the product exist
d. Salaries of research staff
9. Research activities include all of the following except,
a. Search for application of research finding or other knowledge
b. Search for product or process alternative
c. Formulation and design of the possible product or process alternative
d. Design, construction and testing of preproduction prototype and model
10. Development activities include all of the following except,
a. Design of tools, jigs, molds and dies involving new technology
b. Design, construction and operation of a pilot plant that is not of a scale
economically feasible for commercial production
c. Design, construction and testing of a chosen alternative for a new or improved
product or process
d. Laboratory activities aimed at obtaining new knowledge

Answers: Problem 43-4

1. D
2. C
3. D
4. D
5. C

6. A
7. C
8. B
9. D
10.D