Intangibles

Which of the following would qualify as an intangible asset?

• Advertising and promotion on the launch of a huge product.

• College tuition fees paid to employees who decide to enroll in an executive MBA program while working with the entity.

• Operating losses during the initial stages of a project.

• Legal costs paid to intellectual property lawyers to register a patent.

The recognition criteria for an intangible asset include which of the following conditions?

I. It must be measured at cost.

II. Its cost can be measured reliably.

III. It is probable that future economic benefits will arise from its use.

• I, II and III

• I and II only

• I and III only

• II and III only

After initial recognition, an intangible asset shall be carried using the

• Cost model only

• Revaluation model only

• Either cost model or revaluation model

• Neither cost model nor revaluation

Once recognized, intangible assets can be carried at

• Cost less accumulated amortization

• Cost less accumulated amortization and impairment losses

• Revalued amount less accumulated amortization

• Cost plus a notional increase in fair value since the intangible asset is required

Goodwill shall be recognized only when

• It is purchased from another entity.

• It can be established that a definite benefit or advantage has resulted to an entity from some item such as a good name, capable staff, or reputation

• It is acquired through the purchase of another business entity.

• An entity reports above normal earnings for five or more consecutive years.

Goodwill shall be tested for impairment

• If there is an indication of impairment

• Annually

• Every 5 years

• On the acquisition of a subsidiary

An airline entity purchased airline gate rights at an international airport with a legal life of 5 years. However, the entity has the ability and right to extend the rights every 10 years for an indefinite period of time. Over what period of time should the entity amortize the airline gate rights?

• 40 years

• 15 years

• 5 years

• The rights should not be amortized

The appropriate method of amortizing intangible asset is best described by which of the following?

• The straight-line method, unless the pattern in which the asset's economic benefits are consumed by the entity can be determined reliably.

• The double declining balance in all circumstances.

• Management can make a subjective amount of periodic amortization without regard to any particular method.

• The straight-line method in all circumstances.

Which statement is incorrect concerning internally generated intangible asset?

• To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into a research phase and a development phase.

• The cost of an internally generated asset comprises all directly attributable costs necessary to create, produce and prepare the asset for its intended use.

• Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall be recognized as intangible assets.

• Internally generated goodwill shall not be recognized as an intangible asset.

At the beginning of the current year, an entity had capitalized cost for a new computer software product with an economic life of five years. Sales for the current year were 30 percent of expected total sales of the software. However, the pattern of future sales cannot be measured reliably. At year-end, the software had a net realizable value equal to 90 percent of the capitalized cost. What percentage of the original capitalized cost should be reported as the net amount at year-end?

• 70%

• 72%

• 80%

• 90%