INTANGIBLE ASSETS

In January of 2013, Vega Corporation purchased a patent at a cost of $200,000. Legal and filing fees of $50,000 were paid to acquire the patent. The company estimated a 10-year useful life for the patent and uses the straight-line amortization method for all intangible assets. In January 2016, Vega spent $40,000 in legal fees for an unsuccessful defense of the patent. This defense was initiated after another company challenged the patent's validity in court, claiming it was not legitimate. The significant legal costs incurred during this defense were aimed at protecting the value of the patent.

Considering the nature of this event and its implications for Vega Corporation, what amount should be charged to income (expense and loss) in January 2016 related to the patent?

• $40,000

• $65,000

• $215,000

• $25,000

Which of the following statements about intangible assets is correct?

• The Amortisation period and the Amortisation method for an intangible asset with a finite useful life shall be reviewed at least at every two years.

• Amortisation of an intangible with an indefinite life does not cease when the asset is retired from active use.

• Intangible assets are to be derecognised when there are no expected future benefits from the asset.

• Amortisation of an intangible asset with a finite useful life ceases when the asset becomes temporarily idle.

IAS 38 - Intangible assets requires that an intangible asset with a finite life:

• Be amortised across a period of no greater than 20 years.

• Be amortised across a period of no greater than 30 years.

• Not be subject to amortisation charges.

•  Be amortised across its useful life

On September 30, 2013, Morgan Stanley acquired assets consisting of intangible and tangible assets with the following values:

Patent $6 million

Developed technology $3 million

Machinery and equipment $20 million

In-process research & development $2 million

Goodwill $7 million

Morgan's policy is to AMORTIZE INTANGIBLE fixed assets and DEPRECIATE TANGIBLE assets using the straight-line method, with no estimated salvage value.

INTANGIBLE ASSETS have a useful life of 6 years, and TANGIBLE ASSETS have a useful life of 10 years.

What is the total AMORTIZATION expense for intangible assets that Morgan will report in the Income Statement for the year ended December 31, 2013, related to the above assets?

• $375,000

• $500,000

• $125,000

• $250,000

The fundamental differences between intangible and tangible assets: 

1. (1) Non-monetary

2. (2) No fixed physical form

3. (3) No economic value

4. (4) More difficult to value

5. (5) Easier to exploit and use

• (1); (2); (3) 

• (1); (2)

• (1); (2); (4)

• (2); (5)

A company has $20 million in development costs capitalized on 1/10/ 2022 for products currently in production and a new project that began on the same date. The research phase of the new project lasts until 31/12/ 2022 and incurs $1.4 million in costs. From that date, the project incurred development costs of $800,000 per month. On 1/4/2023, the directors became confident that the project would be successful and deliver profits that exceeded costs. The project, which is still under development, is capitalized and depreciated at 20% per year using the straight-line method. How much will be charged to profit or loss for the year ended 30/9/2023 in respect of research and development expenditure?

• $7,8 Million

• $8,08 Million

• $3,8 Million

• $8,8 Million

Which of the following statements regarding the accounting treatment of research and development costs is correct according to IAS 38 Intangible Assets?

(i) Research is a planned and systematic investigation undertaken with the prospect of gaining new knowledge and understanding.

(ii) Development is the application of research results.

(iii) Depreciation of machinery specifically used for the development of a new product can be capitalized as part of development costs.

(iv) Capital mobilization development costs must be presented in the financial position statement according to the infinite image of fortune

(v) An expenditure that has been recognized as an expense cannot be recovered as an asset.

• (iv), (ii), and (iii)

• (i), (ii), and (v)

• (ii), (iii), and (v)

• (ii), (iii), (v) and (i)

Geek Co is developing a new product and expects to be able to capitalize the costs. Which of the following would disallow the capitalisation of the costs?

• Development of the product is not yet complete.

• No patent has yet been registered in respect of the product.

• No sales contracts have yet been signed in relation to the product.

• It has not been possible to reliably allocate costs to development of the product.

Horizon Partners, a calendar year taxpayer, began its business operations on April 1, 2023. In the process of starting up, the partnership incurred the following costs in 2023:

(a)Attorney fees for drafting the partnership agreement: $3,000 million

(b)State filing fee for the formation of the partnership: $2,000million

(c)Salaries for training staff prior to opening: $1,500million

It is known that The IRS allows partnerships to deduct up to $5,000 of startup costs in their first year of operations. Any additional startup costs beyond $5,000 must be amortized over 180 months (15 years).

How much can be charged to P&L in 31 December 2023 ? 

• $6,500 million

• $5,500 million

• $5,000 million

• $5,075 million

Pioneer Partners, a calendar-year partnership, commenced its operations on Jan 1, 2023. Company calculates amortization/depreciation on a straight-line basis. In starting the partnership, the following expenses were incurred and paid in the year 2023:

(a) Legal fees for partnership agreement: $500 

(b) State filing fee for partnership formation: $1,000

(c) Travel expenses for scouting potential business locations: $3,200 

(d) 10-year useful life machinery  $25,000

(e) Franchise expected life of 20 years   $10,000

What is the total amount of expenses charged to P&L at the end of 2023?

• $7,000 million

• $7,700 million

•  $5,800 million

• $4,500 million