IAS 38 INTANGIBLE ASSETS

Which of the following is NOT considered an intangible asset under IAS 38?

• Goodwill

• Patents

• Land

• Trademarks

An intangible asset can be recognized in the financial statements if it:

• Is probable that future economic benefits will flow to the entity

• Has a cost that can be reliably measured

• Meets the definition of an intangible asset

• All of the above

Which of the following is an example of an internally generated intangible asset?

• Purchased goodwill

• Trademark purchased from a third party

• Research costs capitalized

• Development costs meeting recognition criteria

Which of the following is NOT a criterion for capitalizing development costs under IAS 38?

• The intention to complete the asset

• The ability to generate future economic benefits

• The availability of market value

• The ability to measure costs reliably

What is the correct accounting treatment for research costs under IAS 38?

• Capitalize them as an intangible asset

• Expense them as incurred

• Recognize them only when development starts

• Amortize them over their useful life

What is the accounting treatment for intangible assets with an indefinite useful life?

• They are amortized over a 10-year period

• They are expensed as incurred

• They are not amortized but tested for impairment annually

• They are revalued annually and adjusted to fair value

Which ONE of the following CANNOT be recognised as an intangible non-current asset in GHK’s statement of financial position at 30 September 20X1?

• GHK purchased a brand name from a competitor on 1 November 20X0, for $65,000.

• GHK spent $132,000 developing a new type of product. Testing proved that the product was successful in June 20X1 but management is lack of financial resources.

• GHK purchased a subsidiary during the year. During the fair value exercise, it was found that the subsidiary had a brand name with an estimated value of $50,000, but was not recognised by the subsidiary as it was internally generated.

• GHK spent $21,000 during the year on the development of a new product, after management concluded it would be viable in November 20X0. The product is being launched on the market on 1 December 20X1 and is expected to be profitable.

Answer explanation

The finance was not made available until after the year end. Therefore the criteria of recognising the item as an asset were not met, as the resources were not available to complete the project.

Which ONE of the following could be classified as development expenditure in M’s statement of financial position as at 31 March 20X0 according to IAS 38 Intangible Assets?

• A payment of $50,000 to a local university’s engineering faculty to research new environmentally friendly building techniques

• $120,000 spent on developing a prototype and testing a new type of propulsion system. The project needs further work on it as the system is currently not viable

• $65,000 developing a special type of new packaging for a new energy efficient light bulb. The packaging is expected to reduce M’s distribution costs by $35,000 a year

• $35,000 developing an electric bicycle. This is near completion and the product will be launched soon. As this project is first of its kind it is expected to make a loss

Amco Co carries out research and development. In the year ended 30 June 20X5, Amco incurred costs in relation to project X of $750,000. These were incurred at the same amount each month up to 30 April 20X5, when the project was completed. The product produced by the project went on sale from 31 May 20X5 The project had been confirmed as feasible on 1 January 20X5, and the product produced by the project was expected to have a useful life of five years.

What is the carrying amount of the development expenditure asset as at 30 June 20X5?

• $300,000

• $295,000

• $725,000

• $nil

Answer explanation

The costs of $750,000 relate to ten months of the year (up to April 20X5). Therefore per month the costs were $75,000.

As the project was confirmed as feasible on 1 January 20X5, the costs can be capitalised from this date. Therefore four months of these costs can be capitalised = $75,000 × 4 = $300,000.

This asset should be amortised from when the products go on sale, and therefore one month’s amortisation should be charged to 30 June 20X5. Amortisation is ($300,000/5) × 1/12 = $5,000.

Therefore, the carrying value of the asset as at 30 June 20X5 is $300,000 – $5,000 = $295,000

Sybil Co has acquired a subsidiary Basil in the current year. Basil has a brand which has been reliably valued by Sybil at $500,000, and a customer list which Sybil has been unable to value.

Which ONE of these describes how Sybil should treat these intangible assets of Basil in their consolidated Financial Statements?

• They should be included in goodwill.

• Both the brand and the customer list should be capitalised as separate intangibles.

• The customer list should be capitalised as a separate intangible, whereas the brand should be included within goodwill.

• The brand should be capitalised as a separate intangible, whereas the customer list should be included within goodwill.

Answer explanation

The brand of Basil can be measured reliably, so this should be accounted for as a separate intangible on consolidation by Sybil.

The customer list cannot be valued reliably, and so will form part of the overall goodwill calculation of Basil. It will be subsumed within the goodwill value.