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