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Chapter 20
Intangible Assets

Chapter 20: Multiple choice – Computational (SET B) – (For classroom

instruction purposes)

Research and development expense

1. DEBUNK EXPOSE Co. made expenditures for the following:
 Cost in activities aimed at obtaining new knowledge ₱40,000
 Marketing research to study consumer tastes 20,000
 Cost of developing and producing a prototype model 12,000
 Cost of testing the prototype model for safety and environmental
friendliness 160,000
 Cost revising designs for flaws in the prototype model 60,000
 Salaries of employees, consultants, and technicians involved in
R&D 80,000
 Cost of conference for the introduction of the newly developed
product including fee of a model hired as endorser 400,000
 Advertising to establish recognition of the newly developed
product 120,000

How much is recognized as research and development expense?

a. 292,000 b. 352,000 c. 392,000 d. 792,000

Research and development expense – with receivable

2. GOOSEY FOOLISH Co. made expenditures for the following:
 Cost incurred on search for alternatives for materials, devices,
products, processes, systems or services ₱40,000
 Cost of final selection of possible alternatives for a new process 32,000
 Trouble-shooting during commercial production 20,000
 Periodic or routine design changes to existing products 12,000
 Modification of design for a specific customer 160,000
 Payments made to SPOONY, Inc. for R&D performed by SPOONY for 60,000
GOOSEY
 Cost of R&D performed by GOOSEY for SILLY Corp. 80,000

How much is recognized as research and development expense?

a. 132,000 b. 152,000 c. 324,000 d. 152,000

Research and development expense – with intangible asset

3. REALM KINGDOM Co. made expenditures for the following:
 Cost of design, construction and operation of a pilot plant that is
not of a scale economically feasible for commercial production ₱40,000
 Cost of design, construction and operation of plant that is feasible
for commercial production 32,000
 Cost of design of tools, jigs, molds and dies involving new
technology 20,000

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 Cost of routine, seasonal, and periodic design of tools, jigs, molds

and dies 12,000
 Cost of engineering follow through in an early phase of
commercial production 160,000
 Cost of quality control during commercial production 60,000
 Adaptation of an existing capability to a particular customer’s
need 80,000
 Costs in developing software for internal use in REALM’s general
management information system (after technological feasibility
has been established) 160,000

How much is recognized as research and development expense?

a. 60,000 b. 220,000 c. 92,000 d. 252,000

Research and development expense – with PPE

4. FEROCIOUS FIERCE Co. made expenditures for the following:
 Cost of purchased building to be used in various R&D projects ₱400,000
 Depreciation on the building described above 32,000
 Cost of machine acquired to be used on only one R&D project 800,000
 Modification to the formulation of a chemical product 60,000
 Laboratory research aimed at discovery of new technology 48,000

How much is recognized as research and development expense?

a. 140,000 b. 880,000 c. 80,000 d. 940,000

Items not recognized as intangible assets

5. JUMBO VERY LARGE Co. has made expenditures for the following:
 Internally generated brand ₱40,000
 Self-created masthead and publishing title 20,000
 Internally created customer list and order backlog 12,000
 Purchased goodwill from a business combination 160,000
 Expenditure incurred to improve the acquired goodwill 60,000
 Internally generated goodwill 80,000
 Purchased brands, mastheads, publishing titles, customer lists,
and order and production backlogs 400,000
 Expenditures incurred to improve purchased brands,
mastheads, publishing titles, customer lists, and order and
production backlogs 120,000

How much of the expenditures incurred may qualify as intangible assets to be

accounted for under PAS 38?
a. 892,000 b. 492,000 c. 400,000 d. 520,000

Trademark acquired through purchase

6. On January 1, 20x1, SUFFICIENT Co. acquired trademark from ENOUGH, Inc.
for a total cost of ₱400,000. Other related costs incurred include the
following:
 Costs of employee benefits arising directly from bringing the asset
to its intended condition ₱40,000
 Professional fees arising directly from bringing the asset to its

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intended condition 20,000

 Costs of introducing the new product including advertisement
costs 12,000

How much is the cost of the intangible asset?

a. 460,000 b. 472,000 c. 400,000 d. 412,000

Trademark obtained through self-generation

7. On January 1, 20x1, PRIME FIRST Co. generated a trademark. Costs incurred
include the following:
 Costs of materials and services used or consumed in generating
the trademark ₱200,000
 Costs of employee benefits incurred in generating the trademark 40,000
 Fees to register the trademark 20,000
 Amortization of patents and licenses that were used to generate
the trademark 8,000
 Selling, administrative and other general overhead expenditures 120,000

How much is the cost of the intangible asset?

a. 20,000 b. 268,000 c. 260,000 d. 388,000

Web site cost

8. BRAWNY STRONG Co., an audit firm, incurred the following costs in self-
development of its web site. The web site will be used by its auditors in,
among other things, sending emails to clients, posting updates on financial
reporting and auditing standards and other relevant regulations, uploading
and retrieving working papers, and in checking their pay slips.
 Costs incurred in purchasing web servers, staging servers,
production servers and Internet connections 2,000,000
 Costs incurred during the planning stage 400,000
 Costs incurred during the application and infrastructure,
graphical design, and content development stage. 1,200,000
 Costs incurred during operating stage 200,000

Assume that all conditions for capitalization of development costs are met, how
much is the cost of web site recognized as intangible asset?
a. 3,600,000 b. 1,200,000 c. 1,600,000 d. 0

Web site cost

9. HUMANE CONSIDERATE Co. incurred the following costs in relation to the
development of web site:
 Development costs of a web site to be used internally 200,000
 Development costs of a web site to be used externally in
promoting and advertising products. Customers place orders
personally at retail outlet stores or through telephone or
facsimile. 40,000
 Development costs of web sites held for sale to various clients. 120,000
 Internet fee paid for the month 4,000

How much is capitalized as intangible asset?

a. 200,000 b. 240,000 c. 320,000 d. 0

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Web site cost

10. SECRETE GIVE OFF Co. incurred the following costs in relation to the
development of its web site.
 Development costs of a web site to be used externally.
Customers place orders and pay directly through the web site. 120,000
 Payment to Mr. Web developer for his assistance in developing
the web site. 40,000
 Cost of digital photographs of goods uploaded to the web site 20,000
 Professional fee of Mr. Manny Boksingero, the product endorser 12,000,000
 Fee of Mr. Freddie Croach for making Mr. Manny sweat before
the pictorial. 4,000,000

How much is capitalized as intangible asset?

a. 580,000 b. 16,580,000 c. 180,000 d. 160,000

Customer list
11. On January 1, 20x1, PLUMP FULLY ROUNDED Co. purchased a customer list of
a large distributor of health products for ₱180,000. This customer database
includes name, contact information, order history, and demographic
information. PLUMP expects to benefit from the information evenly over a 3-
year period. How much is the carrying amount of the intangible on December
31, 20x1?
a. 120,000 b. 60,000 c. 180,000 d. 0

Franchise with finite useful life

12. On January 1, 20x1, WHOLESOME Co. acquired a franchise from HEALTHY Co.
for ₱1,600,000. The franchise gives WHOLESOME the right to sell HEALTHY’s
products until December 31, 20x5, at which date WHOLESOME may renew
the franchise for another fee subject to a new franchise agreement. In January
20x1, HEALTHY has performed substantially all the services required under
the franchise contract and WHOLESOME started operating the franchise.
Annual periodic franchise fee for 20x1 is ₱60,000. How much is the
amortization expense recognized in 20x1?
a. 320,000 b. 60,000 c. 80,000 d. 0

Franchise with finite useful life

Use the following information for the next two questions:
On January 1, 20x1, CLUSTER Co. acquired a perpetual franchise from BUNCH Co.
for ₱800,000 by paying ₱400,000 cash as down payment and issuing a note
payable for the remainder. The note payable is payable in five equal annual
payments of ₱80,000 starting January 1, 20x1. The franchise gives CLUSTER the
right to manufacture and sell Queen’s balls using the processes developed by
BUNCH Co. for an indefinite period. The imputed rate of interest is 10%

In January 20x1, BUNCH has performed substantially all the services required
under the franchise contract and CLUSTER started making balls. Annual periodic
franchise fee for 20x1 is ₱200,000.

13. How much is the initial cost of the franchise?

a. 333,600 b. 842,162 c. 656,744 d. 733,600

14. How much is the total expense recognized in 20x1 related to the franchise?
a. 200,000 b. 225,360 c. 7,364 d. 447,364

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Acquired broadcasting license

15. On January 1, 20x1, KEEN SHARP Co. acquired a broadcasting license for
₱400,000 that is renewable every 10 years if KEEN provides at least an
average level of service to its customers and complies with the relevant
legislative requirements. The license may be renewed indefinitely at little cost
and has been renewed twice before the most recent acquisition. KEEN intends
to renew the license indefinitely and evidence supports its ability to do so.
Historically, there has been no compelling challenge to the license renewal.
The technology used in broadcasting is not expected to be replaced by
another technology at any time in the foreseeable future.

How much is amortization expense to be recognized on December 31, 20x1?

a. 40,000 b. 400,000 c. 36,547 d. 0

Purchased patent
Use the following fact pattern for the next three questions:
Fact pattern
On January 1, 20x1, SPARSE Co. purchased a patent from THINLY SPREAD, Inc.
for ₱400,000. THINLY SPREAD has held this patent for 5 years. SPARSE estimates
that the patent has a remaining useful life of 8 years.

16. How much is the patent amortization in 20x1?

a. 80,000 b. 50,000 c. 266,667 d. 20,000

17. On January 1, 20x3, SPARSE Co. purchased a competitive patent from

MEAGER Corp. for ₱180,000 in order to protect the old patent. The
competitive patent has a remaining legal life and useful life of 20 years. How
much is the total amortization expense in 20x3?
a. 50,000 b. 80,000 c. 133,367 d. 42,500

18. On January 1, 20x4, SPARSE incurred litigation costs of ₱80,000 in an

unsuccessful defense of the patents held. How much is the total expense
recognized in 20x4?
a. 80,000 b. 160,000 c. 523,667 d. 480,000

Internally generated patent

Use the following information for the next four questions:
In 20x1, VENERATE RESPECT Co. started to develop a patent. Total costs
incurred during the year amounted to ₱400,000. On January 1, 20x2, the patent
was fully developed. Legal and registration costs incurred in registering the
patent amounted to ₱240,000. It was estimated that the patent has a useful life of
25 years.

19. How much is the carrying amount of the patent on December 31, 20x2?
a. 614,400 b. 608,000 c. 230,400 d. 228,000

20. In 20x4, VENERATE Co. started to develop a new improved patent to extend
the life of the old patent. Development costs totaled ₱800,000. How much is
the carrying amount of the patent on December 31, 20x4?
a. 204,000 b. 870,400 c. 1,272,000 d. 216,000

21. On January 1, 20x5, the new patent was completed and legal and registration
costs incurred to register the new patent amounted to ₱320,000. It was
estimated that the new patent will extend the life of the old patent by another
20 years starting January 1, 20x5. How much is the amortization expense in
20x5?

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a. 78,200 b. 26,200 c. 346,200 d. 416,200

22. On January 1, 20x6, VENERATE Co. incurred litigation costs of ₱80,000 in a

successful defense of the patents held. How much is the total expense
recognized in 20x6 relating to the patent?
a. 158,200 b. 106,200 c. 80,000 d. 26,200

Patent with residual value

23. On January 1, 20x1, PROMPT Co. incurred ₱400,000 in registering a patent.
QUICK, Inc., a third party, committed to purchase the patent for the remaining
5 years of its legal useful life for a total cost of ₱100,000. How much is the
carrying amount of the patent on December 31, 20x1?
a. 320,000 b. 240,000 c. 340,000 d. 380,000

Change in useful life

24. On January 1, 20x1, PUISSANCE POWER Co. incurred ₱400,000 in registering
a patent. It was initially estimated that the useful life of the asset is 20 years,
equal to its legal life. However, on January 1, 20x6, PUISSANCE assessed that
the useful life of the patent was only 15 years starting on date of registration.
How much is the amortization expense in 20x6?
a. 30,000 b. 32,400 c. 36,800 d. 28,000

Computer software
25. ENTITY BEING Co. incurred the following costs in self-generating computer
software.
 Completion of detailed program design ₱2,000,000
 Cost incurred for coding and testing to establish technological
feasibility 1,600,000
 Other coding costs after establishment of technological feasibility 4,000,000
 Other testing costs after establishment of technological feasibility 3,200,000
 Costs of producing product masters 2,400,000
 Reproduction and duplication costs from product masters 4,800,000
 Packaging costs for the reproduced software 1,200,000

How much is the cost of computer software recognized as intangible asset?

a. 13,200,000 b. 11,200,000 c. 7,200,000 d. 9,600,000

Amortization of computer software

26. TRAVERSE TO CROSS Co. incurred the following costs in developing software:
Development costs prior to reaching technological
feasibility ₱800,000
Development cost after reaching technological feasibility 480,000
Cost of duplicating salable product to be sold over the life
of the software 9,600,000
Estimated revenues over 3-year total product life 24,000,000
Revenue in the first year of product life 8,000,000

How much is the total software-related expense for the year?

a. 4,160,000 b. 160,000 c. 960,000 d. 3,360,000

Acquisition of intangible assets in lump sum

27. SPONTANEOUS SELF-ACTING Co. acquired the intangible assets listed below
for a total lump sum price of ₱400,000.

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Intangible asset Fair value

 Service mark ₱160,000
 Order and production backlogs 120,000
 In-house research and development 80,000
 Masthead 120,000

How much is the initial measurement of the masthead?

a. 100,000 b. 120,000 c. 133,333 d. 266,667

The answers and solutions to the computational problems above

(Multiple choice – Computational (SET B) can be found in the
accompanying Teacher’s Manual.

Chapter 20: Theory of Accounts Reviewer

Objective and scope
1. Which of the following may PAS 38 be applied to?
a. goodwill acquired in a business combination
b. rights arising from exploration and evaluation assets
c. computer software held for sale in the ordinary course of business
d. leasehold improvements
e. web site costs

2. PAS 38 does not apply to all of the following, except

a. receivables without physical substance
b. intangible assets classified as assets held for sale
c. insurer’s contractual rights under insurance contracts
d. assets arising from employee benefits
e. right to utilize another entity’s business concept

3. It is an identifiable non-monetary asset without physical substance.

a. intangible asset c. ghost asset
b. financial asset d. dream asset

4. PAS 38 states that an asset meets the identifiability criterion in the definition
of an intangible asset when it:
I. is separable, i.e., capable of being separated or divided from the entity and
sold, transferred, licensed, rented or exchanged, either individually or
together with a related contract, asset or liability
II. arises from contractual or other legal rights, regardless of whether those
rights are transferable or separable from the entity or from other rights
and obligations.
a. I b. II c. I or II d. none

5. All of the following are essential characteristics of an intangible asset, except

a. Identifiability c. Future economic benefits
b. Control d. Subject to amortization

6. Which of the following is one of the essential characteristics of an intangible

asset?
a. used in business c. identifiable
b. subject to amortization d. monetary

7. The definition of an intangible asset

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a. requires an intangible asset to be used in business

b. requires an intangible asset to provide future economic benefits through
increased revenues
c. requires an intangible asset to be identifiable to distinguish it from
goodwill.
d. requires an intangible asset to be without physical substance, whether the
asset is monetary or not.

8. An asset that cannot be sold, transferred, licensed, rented, or exchanged

separately is called
a. goodwill c. unidentifiable
b. intangible d. no such thing

9. Which of the following items may qualify for recognition as intangible asset?
a. Market and technical knowledge
b. Employees’ skills developed from training
c. Specific managerial or technical talent
d. Market share and customer loyalty
e. None of these

10. Future economic benefits from an intangible asset may be obtained in various
ways which include
a. restricting others from the use of the asset
b. enjoyment of legal enforceability
c. reduced operating costs
d. separability through transferable right

11. Which of the following is not true regarding control over an intangible asset?
a. An entity controls an asset if the entity has the power to obtain the future
economic benefits flowing from the underlying resource and to restrict
the access of others to those benefits.
b. The capacity of an entity to control the future economic benefits from an
intangible asset would normally stem from legal rights that are
enforceable in a court of law. In the absence of legal rights, it is more
difficult to demonstrate control.
c. Legal enforceability of a right is a necessary condition for control because
without it an entity cannot be able to control the future economic benefits
from the asset.
d. Control may be acquired from contractual rights such as rights arising
from franchises and non-competition agreements.

12. Regarding an asset that contains both intangible and tangible components,
which of the following statements is incorrect?
a. the entity uses its judgment on how to classify the asset
b. the asset is classified as property, plant and equipment if the intangible
component forms an integral part of the tangible asset
c. the entire asset is classified as property, plant and equipment if the
intangible component is necessary for the tangible asset to operate
d. the entire asset is classified as intangible asset if the tangible component is
necessary for the intangible asset to operate.

13. Which item listed below does not qualify as an intangible asset?
a. Computer software. c. Copyrights that are protected.
b. Registered patent. d. Notebook computer.
(Adapted)

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Financial statement presentation

14. The line item intangible asset presented on the face of the statement of
financial position normally includes which of the following items?
a. goodwill
b. leasehold improvements
c. operating software costs
d. significant application software costs
e. all of these

15. Which of the following is not an acceptable financial statement presentation

for intangible assets?
a. Intangible assets accounted for under PAS 38 shall be presented
separately from Goodwill.
b. Intangible assets accounted for under PAS 38 are aggregated and
presented as one line item under the heading “Intangible assets” or “Other
intangible assets” in the statement of financial position. The breakdown of
the line item is disclosed in the notes.
c. Goodwill is presented separately in a statement of financial position under
a line item described as “Goodwill.”
d. Goodwill is aggregated with other intangible assets and the breakdown is
provided in the notes.

Recognition
16. An intangible asset shall be recognized if management can demonstrate that:
I. the item meets the definition of intangible asset
II. it is probable that the expected future economic benefits will flow to the
entity
III. the cost of the asset can be measured reliably.
IV. the entity becomes a party to the contractual provisions of the intangible
asset
V. the fair value of the intangible asset can be reliably determined
a. I, II, III b. I, II, III, IV c. I, II, III, IV, V d. I, II, V

17. At initial recognition, an intangible asset shall be measured

a. at cost c. at fair value plus direct acquisition costs
b. at fair value d. any of these

18. Measurement of cost depends on how the intangible asset is acquired.

Intangible assets may be acquired through:
I. Separate acquisition
II. Acquisition as part of a business combination
III. Acquisition by way of a government grant
IV. Exchanges of assets
V. Internal generation
a. I, II, III, IV b. I, V c. I only d. any of these

19. When an intangible asset is separately acquired through purchase, which of

the following is incorrect?
a. trade discounts and rebates are deducted from the purchase price
whether taken or not
b. any directly attributable cost of preparing the asset for its intended use
forms part of initial cost
c. if settlement is deferred, the intangible asset is recognized at its cash price
equivalent, any difference between this amount and future payments is
recognized as interest expense

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d. trade discounts and rebates are deducted from the purchase price only
when taken

20. MYTHICAL Co. acquired an intangible asset from IMAGINARY Co. during the
year. Which of the following costs incurred by Mythical should not be
included as initial cost of the intangible asset purchased?
a. fees of Mr. Programmer in installing the software purchased
b. fees of Mr. Auditor in auditing the system prior to closing the purchase
contract
c. costs of testing the new system whether it is functioning properly
d. advertising costs for the new product that will be produced using the
newly acquired software

21. SPLICE Co. acquired an intangible asset from 2UNITE Co. during the year.
Which of the following costs should be included as initial cost of the intangible
asset purchased?
a. costs of training Mrs. Old Baket, the designated employee to operate the
newly acquired asset
b. allocation of administration and other general overhead costs
c. rebates on the invoice price not taken
d. non-refundable sales taxes paid on the purchase

22. SVELTE Co. acquired an intangible asset from SLENDER Co. during the year.
All of the following costs incurred by Svelte related to the newly acquired
asset should be expensed immediately, except
a. initial operating losses incurred while demand for the asset’s output
builds up
b. modifications to the intangible asset after it was put to the operating
condition originally intended by Svelte
c. costs incurred while the asset capable of operating in the manner
intended by management has yet to be brought into use
d. salvage proceeds from samples produced during testing

23. The cost of intangible asset acquired in a business combination is its

a. fair value at the acquisition date
b. purchase cost
c. lower of cost or fair value
d. fair value less costs to sell at acquisition date

24. Which of the following provides the most reliable estimate of the fair value of
an intangible asset?
a. quoted market price in an active market
b. price in a binding sale agreement
c. present value of future cash flows
d. any of these

25. If no active market exists for an intangible asset, which of the following is
true?
I. its fair value is the amount that the entity would have paid for the asset, at
the acquisition date, in an arm’s length transaction between
knowledgeable and willing parties, on the basis of the best information
available.
II. Its fair value may be determined by discounting estimated future net cash
flows from the asset
a. True, true b. True, false c. False, true d. False, false

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26. Intangible assets acquired by way of government grant may be initially

recognized at
a. fair value b. nominal amount c. zero d. any of these

27. During the year, ENDEAVOR Co. received an intangible asset from 2TRY Co. in
an exchange transaction with commercial substance. Which of the following
statements is true?
a. Endeavor measures the intangible asset received at the fair value of the
intangible asset given up minus cash paid
b. Endeavor recognizes gain or loss on the exchange for the difference
between the fair value of the asset received and the carrying amount of
the asset received
c. If Endeavor cannot determine the fair value of the asset received, it shall
measure the intangible asset received using the fair value of the intangible
asset given up.
d. Endeavor recognizes gain or loss on the exchange for the difference
between the fair value of the asset given up and the carrying amount of
the asset given up, regardless of whether cash is received or paid

28. During the year, ZENITH Co. received an intangible asset from HIGHEST
POINT Co. in an exchange transaction that lacks commercial substance. Which
of the following statements is incorrect?
a. Zenith should measure the asset received at the carrying amount of the
asset given up
b. Zenith should not recognize any gain or loss on the sale unless cash is paid
on the exchange
c. Zenith should measure the asset received at an amount equal to the
difference between the initial cost of the asset given up and its related
accumulated amortization
d. Zenith should not recognize any gain or loss on the sale regardless of
whether cash is received or paid.

29. To assess whether an internally generated intangible asset meets the criteria
for recognition, an entity classifies the generation of the asset into research
phase and development phase. Which of the following statements is true?
a. If an entity cannot distinguish the research phase from the development
phase, the entity treats expenditures as if they were incurred in the
development phase only.
b. Expenditures incurred in the research phase shall be recognized as
expense when incurred.
c. An intangible asset may be recognized for expenditures incurred in
research phase.
d. An in-process research and development (R&D) project acquired as part
of a business combination is expensed if a component is research.

30. Which of the following transactions may not give rise to recognition of an
intangible asset?
a. HEARTY Co. acquired SINCERE Co. in a business combination. Among the
items acquired is an R&D project composed mainly of expenditures
incurred by Sincere in research phase.
b. Expenditures incurred in development phase that meet all of the
conditions for recognition as intangible asset
c. Expenditures incurred in research phase for an invention that is highly
viable
d. Registration and legal fees for a patent filed with the IPO.

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31. Which of the following is included in research and development expense for a
period?
a. The total cost of a building with useful life of 25 years acquired during the
year to be used in various research and development projects
b. Depreciation on a building used for research and development
c. The cost incurred during the year to ensure quality control for existing
production processes
d. The cost incurred during the year for research activities performed for
another entity.
(Adapted)

32. Intangible assets have all of the following characteristics, except:

a. their ownership confers rights, but no physical substance.
b. they have no physical substance.
c. they are relatively long-lived.
d. they provide benefits to current operations only.
(AICPA)

33. Which of the following statements is correct?

a. Some intangible assets convey exclusive rights which are represented only
by tangible physical substance.
b. Intangible assets used in the operation of a business are always long term.
c. The process of recording the expiration of the economic benefits of an
intangible asset is called depletion.
d. Intangible assets are obtained in two ways: acquisition from an external
source or internally developed.
(AICPA)

34. Which of the following statements is true?

a. The only cost of an internally developed patent that should be capitalized
as patent cost are legal fees and other registration costs.
b. An identifiable tangible asset developed internally is never recognized in
the accounts as an asset.
c. Intangible assets usually have a residual value that must be considered in
the amortization of cost.
d. An intangible asset is usually amortized by a credit to an income account.
(Adapted)

35. For some purposes, assets are classified as identifiable and unidentifiable.
Which of the following is an unidentifiable asset?
a. cash in bank c. goodwill
b. patent d. prepaid insurance
(Adapted)

36. Goodwill should properly appear on the financial statements of an entity

which:
a. has purchased another entity
b. consistently operates profitably
c. consistently reports above-normal profits
d. meets all of the conditions regarding legal goodwill.
(AICPA)

37. Costs incurred by a company that developed its own goodwill internally
should be :
a. capitalized and amortized as the company profits increased.
b. capitalized and amortized over the useful life of the goodwill.

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c. expensed when incurred as a current operating expense.

d. capitalized and amortized over a period not to exceed 40 years.
(AICPA)

38. According to PAS38 Intangible assets, the recognition criteria for an intangible
asset include which of the following conditions?
a. It must be measured at cost
b. Its cost can be measured reliably
c. It is probable that future economic benefits will arise from its use
d. It is an integral part of the business
e. b and c
(ACCA)

39. Which of the following items qualify as an intangible asset under PAS 38?
a. Advertising and promotion on the launch of a huge product.
b. College tuition fees paid to employees who decide to enroll in an executive
M.B.A. program at Harvard University while working with the company.
c. Operating losses during the initial stages of the project.
d. Legal costs paid to intellectual property lawyers to register a patent.
(Adapted)

40. Which of the following assets typically are amortized?

Patents Trademarks
a. No No
b. Yes Yes
c. No Yes
d. Yes No
(AICPA)

41. The creative chief executive of a corporation who is personally responsible

for numerous inventions and innovations is not reported as an asset on the
corporation's statement of financial position. The accounting
principle/guideline that prevents the corporation for reporting this person as
an asset is
a. Conservatism b. Cost c. Going concern d. Materiality
(AICPA)

42. What is the proper time or time period over which to match the cost of an
intangible asset with revenues if it is likely that the benefit of the asset will
last for an indefinite period?
a. Forty years
b. Fifty years
c. Immediately
d. At such time as reduction in value can be quantitatively determined.
(AICPA)

43. Which of the following expenditures qualifies for asset capitalization?

a. Cost of materials used in prototype testing
b. Costs of testing a prototype and modifying its design
c. Salaries of engineering staff developing a new product
d. Legal costs associated with obtaining a patent on a new product
(AICPA)

44. Which of the following statements is correct concerning start-up costs?

a. Costs of start-up activities, including organization costs, should be
expensed as incurred.

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b. Costs of start-up activities, including organization costs, should be

capitalized and expensed only if an impairment exists.
c. Costs of start-up activities, including organization costs, should be
capitalized and amortized on a straight-line basis over the lesser of the
estimated economic life of the company, or 60 months.
d. Costs of start-up activities should be capitalized and amortized on a
straight-line basis over the lesser of the estimated economic life of the
company, or 60 months, while organization cost should be expensed as
incurred.
(AICPA)

45. Which of the following incorrectly relate(s) to accounting for long-lived

assets?
I. Goodwill arising from a consolidation which appears among the assets on
the consolidated balance sheet of a parent company and its only
subsidiary shows that the subsidiary was acquired at a price that was less
than the underlying book value of its tangible assets.
II. Provisions for renewal or extension may alter a specified limit on useful
life of intangible assets thus affecting the amortization amount.
III. Amortization policy on intangible assets should be continually evaluated
to determine whether later events and circumstances necessitate revision
of estimates of useful lives.
IV. Costs to develop a product or process to be patented may form part of the
costs of patents.
V. To be consistent, amortization policy of intangible assets should not be
evaluated often even if later events and circumstances warrant revised
estimates of useful lives.
a. IV, V b. II, III c. II, III, IV d. I, IV, V

46. Goodwill arising from a business combination should:

a. be expensed in the year of acquisition
b. be amortized over its economic life
c. not be amortized but tested for impairment at least annually
d. be written off after (40) years or (20) years depending on the GAAP
adopted
(AICPA)

47. Accounting for intangible assets involves the same kind of problem as
accounting for other long-lived assets, such as:
a. accounting after acquisition (amortization)
b. accounting if the values decline substantially & permanently
c. determining an initial carrying amount
d. all of these
(AICPA)

48. Improvements to leased facilities are included under property, plant and
equipment if:
Material in amount Terms extend over long period
a. no yes
b. yes no
c. no no
d. yes yes
(AICPA)

49. Which of the following is not a required characteristics for an item to be

classified as an intangible asset?

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a. lack of physical substance

b. ownership confers some exclusive right, privilege or competitive
advantage
c. estimated life should not exceed forty years
d. provide future benefits by enhancing revenues or reducing costs
(AICPA)

50. The following statements relate to intangible assets:

I. All intangible assets have no physical existence, but not all assets having
no physical existence are intangible assets.
II. Under current accounting practice, intangible assets are classified into
those with finite useful lives such as patents and those with indefinite
useful lives such as trademark.
III. Research and development costs must be expended for financial reporting
purposes in the year in which the costs are incurred even though the costs
may provide benefits to future periods.
IV. Only when intangible assets are acquired from other entities can they be
recognized as assets.

State whether the foregoing statements are false.

a. All the statements are false. c. Only two statements are false.
b. Only one statement is false. d. Three statements are false.

51. Costs incurred internally to create intangibles are

a. capitalized.
b. capitalized if they have an indefinite life.
c. generally expensed as incurred.
d. expensed only if they have a limited life.
(AICPA)

52. The cost of an intangible asset includes all of the following except
a. purchase price. c. other incidental expenses.
b. legal fees. d. all of these
(AICPA)

53. Are the following statements true or false, according to PAS38 Intangible
assets?
1) The cost of an asset should include the amount of any cash or cash
equivalents paid to acquire the asset.
2) The cost of an asset should include non-cash consideration measured at
fair value.
a. False False b. False True c. True False d. True True
(ACCA)

Subsequent measurement
54. Subsequent to initial recognition, an intangible asset may be measured using
a. cost model or revaluation model c. cost model only
b. cost model or fair value model d. either a or b

55. The revaluation model may be used for an intangible asset

a. which has an active market
b. whose fair value can be determined reliably through a valuation technique
such as discounted future cash flows
c. which has an active market and a residual value
d. the revaluation model is applicable only to items of PPE but not to
intangible assets

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56. Which of the following factors should not be considered in determining the
useful life of an intangible asset?
a. Legal, regulatory, or contractual provisions.
b. Expected action of competitors.
c. Provisions for renewal or extension of life.
d. Initial cost
(AICPA)

57. Which of the following is not considered in estimating the useful life of
intangible assets?
a. effects of obsolescence, demand and competition
b. the salvage value of the asset
c. the service life expectancies of individuals or groups of employees
d. expected actions of competitors
(AICPA)

58. Factors considered in determining an intangible asset’s useful life include all
of the following except
a. the expected use of the asset.
b. any legal or contractual provisions that may limit the useful life.
c. any provisions for renewal or extension of the asset’s legal life
d. the amortization method used.
(AICPA)

59. Amortization of intangible assets results primarily from the application of the:
a. matching principle c. cost principle
b. full-disclosure d. revenue principle
(Adapted)

60. Once recognized, intangible assets can be carried at

a. Cost less accumulated amortization.
b. Cost less accumulated amortization and less accumulated impairment
losses.
c. Revalued amount without deduction for accumulated amortization.
d. Cost plus a notional increase in fair value since the intangible asset is
acquired.
(Adapted)

61. Amortization of an intangible asset is usually recorded as a:

a. debit to retained earnings and a credit to a contra account.
b. debit to retained earnings and a credit to the intangible asset account.
c. debit to retained earnings and a credit to a contra account.
d. debit to amortization expense and a credit to a contra account.
(AICPA)

62. Which of the following methods of cost allocation cannot be used for
intangible assets?
a. Declining balance c. Units of production
b. Revenue method d. Effective interest method

63. Which of the following methods of cost allocation can be used for intangible
assets?
a. straight line c. units-of-production
b. revenue method d. any of these

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64. Under PAS 38, the default cost allocation method for intangible assets is?
a. revenue method c. SYD
b. straight line d. no default method

65. JOCUND Co. has an intangible asset, which it estimates will have a useful life of
10 years, while MERRY Co. has goodwill, which has an indefinite life. Which
company should report amortization in its financial statements?
JOCUND MERRY JOCUND MERRY
a. Yes Yes c. No Yes
b. Yes No d. No No
(AICPA)

66. According to PAS38 Intangible assets, which of the following criteria are
relevant in determining the useful life of an intangible asset?
a. obsolescence d. residual value
b. amortization period e. a and c
c. expected usage
(ACCA)

67. According to PAS 38, the residual value of an intangible asset is presumed
a. equal to fair value in active market
b. equal to the amount the third party wants to buy
c. equal to a conservative estimation
d. zero

68. In accordance with generally accepted accounting principles, which of the

following methods of amortization is normally recommended for intangible
assets?
a. SYD c. units of production
b. straight-line d. double declining balance
(AICPA)

69. On January 1, 20x1, an intangible asset with a thirty-five year estimated useful
life was acquired. On January 1, 20x6, a review was made of the estimated
useful life and it was determined that the intangible asset had an estimated
useful life of forty-five more years. As a result of the review
a. The original cost at January 1, 20x6 should be amortized over a fifty-year
life.
b. The original cost at January 1, 20x1 should be amortized over the
remaining thirty-year life.
c. The unamortized cost at January 1, 20x6 should be amortized over a forty-
year life.
d. The unamortized cost at January 1, 20x6 should be amortized over a
thirty-five year life.
(AICPA)

70. A brand name that was acquired separately should initially be recognized,
according to PAS38 Intangible assets, at
a. recoverable amount c. fair value
b. either cost or fair value at the choice of the acquirer d. cost
(ACCA)

71. Which of the following should be expensed as incurred on a franchise with an

estimated useful life of ten years?
a. Amount paid to the franchisor for the franchise.

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b. Periodic payments to a company, other than the franchisor, for that

company’s franchise.
c. Legal fees paid to the franchisee’s lawyers to obtain the franchise.
d. Periodic payments to the franchisor based on the franchisee’s revenues.
(AICPA)

72. Are the following statements true or false, according to PAS38 Intangible
assets?
1) Intangible assets acquired in a business combination should only be
recognized if they have already been recognized by the entity being
acquired.
2) Intangible assets acquired in a business combination should not be
recognized separately from goodwill.
a. False False b. False True c. True False d. True True
(ACCA)

73. A change in the amortization method or amortization rate for an intangible

asset is accounted for:
a. prospectively b. retrospectively c. currently d. gracefully

74. Which of the following factors influence(s) the Brand strength of a company?
I. Customer loyalty
II. Statutory protection
III. Brand Management by the company
a. I, II b. I c. II d. I, II, III

75. Which of the following is not specifically an identifiable intangible asset?

a. Kina Rogers franchise c. secret formula for a Krabby Patty
b. secret processes d. goodwill

76. Are the following statements true or false, according to PAS38 Intangible
assets?
1) Intangible assets cannot be treated as having an indefinite useful life.
2) Intangible assets with a finite useful life should be measured at cost and
tested annually for impairment.
a. False False b. False True c. True False d. True True
(ACCA)

77. According to PAS38 Intangible assets, amortization of an intangible asset with

a finite useful life should commence when
a. it is first recognized as an asset
b. it is available for use
c. it is probable that it will generate future economic benefits
d. the costs can be identified with reasonable certainty
(ACCA)

78. Are each of the following factors relevant, according to PAS38 Intangible
assets, in determining the annual amortization expense on an intangible
asset?
I. The cost.
II. The amortization method.
a. Not relevant, Not relevant c. Relevant, Not relevant
b. Not relevant, Relevant d. Relevant, Relevant
(ACCA)

79. Which of the following is not a long-term investment?

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a. shares held to exert influence on another entity

b. land held for speculation
c. trademarks
d. cash surrender value of life insurance
(Adapted)

80. Which of the following would not be included in research and development
expense for APATHETIC Co. for current period?
a. The portion of plant assets, devoted completely to research for
APATHETIC, which is amortized in the current period.
b. The cost of materials used in conducting research for APATHETIC during
the current period.
c. Cash paid by APATHETIC to INDIFFERENT Co. for research performed by
INDIFFERENT Co. for APATHETIC in the current period.
d. The cost of labor incurred by APATHETIC in conducting research for
UNCONCERNED Co. during the current period.
(Adapted)

81. Which of these statements about research and development expenditure are
correct?
1. If certain conditions are satisfied, research and development expenditure
must be capitalized.
2. One of the conditions to be satisfied if development expenditure is to be
capitalized is that the technical feasibility of the project is reasonably
assured.
3. If capitalized, development expenditure must be amortized over a period
not exceeding five years.
4. The amount of capitalized development expenditure for each project
should be reviewed each year. If circumstances no longer justify the
capitalization, the balance should be written off over a period not
exceeding five years.
5. Development expenditure may only be capitalized if it can be shown that
adequate resources will be available to finance the completion of the
project and all other conditions are also met.
a. 2 and 5 b. 3, 4 and 5 c. 2, 3 and 5 d. 1, 2 and 3
(Adapted)

82. Which of the following is a true statement concerning research and

development (R&D) costs?
a. All R&D costs, without exception, must be charged to expense when
incurred.
b. R&D costs can only be amortized over a life of 40 years or more.
c. Almost any treatment is acceptable for handling R&D costs.
d. Financial statements must disclose total R&D costs charged to expense in
the period
(Adapted)

83. Total research and development expense for CUNNING, Inc. would include
which of the following items:
I. Depreciation on CUNNING, Inc. property, plant and equipment used in
CUNNING, Inc.'s development projects
II. Amortization of CUNNING, Inc. patents used in CUNNING, Inc.'s research
III. Resources paid by CUNNING, Inc. for SLY Co.'s research efforts performed
for CUNNING, Inc. research and development projects
IV. CUNNING, Inc. cost of research performed for CLEVER Corporation's
research and development projects

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V. CUNNING, Inc. costs of internal development efforts which culminated in a

patent granted to CUNNING, Inc.
VI. Overhead costs allocated to CUNNING Inc.’s research and development
efforts which took the place of another CUNNING, Inc. activities
VII. Costs to train CUNNING, Inc. employees to run machines used in ongoing
production. These machines had earlier been developed by CUNNING, Inc.
a. I, II, III b. I, II, III, IV, V c. I, II, III, V, VI d. all of these
(Adapted)

84. A newly set up dot-com entity has engaged you as its financial advisor. The
entity has recently completed one of its highly publicized research and
development projects and seeks your advice on the accuracy of the following
statements made by one of its stakeholders. Which one is it?
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 costs of technicians used in research can be capitalized.
d. Designing of jigs and tools qualify as research activities.
(Adapted)

85. Which of the following is an example of activities that would typically be

excluded in research and development costs?
a. Design, construction, and testing of preproduction prototypes and modes.
b. Laboratory research aimed at discovery of new knowledge.
c. Quality control during commercial production, including routine testing of
products.
d. Testing in search for, or evaluation of, product or process alternatives.
(AICPA)

86. Which of the following is a research and development cost?

a. Development or improvement of techniques and processes.
b. Offshore oil exploration that is the primary activity of a company.
c. Research and development performed under contract for others.
d. Market research related to a major product for the company.
(AICPA)

87. HEARTY Company and WARM-SINCERE Company were combined in a

purchase transaction. HEARTY was able to acquire WARM-SINCERE at a
bargain price. The sum of the market or appraised values of identifiable assets
acquired less the fair value of liabilities assumed exceeded the cost to
HEARTY. After revaluing noncurrent assets to zero, there was still some
"negative goodwill." Proper accounting treatment by HEARTY is to report the
amount as
a. an extraordinary gain.
b. part of current income in the year of combination.
c. a deferred credit and amortize it.
d. paid-in capital.
(AICPA)

88. Goodwill may be

a. capitalized only when purchased.
b. capitalized either when purchased or created internally.
c. capitalized only when created internally.
d. written off directly to retained earnings.
(AICPA)

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89. Which of the following research and development related costs should be
capitalized and amortized over current and future periods?
a. Research and development general laboratory building which can be put
to alternative uses in the future
b. Inventory used for a specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another company to aid a particular
research project currently in process
(AICPA)

90. Which of the following principles best describes the current method of
accounting for research and development costs?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense
(AICPA)

91. How should research and development costs be accounted for, according to
PAS 38?
a. Must be capitalized when incurred and then amortized over their
estimated useful lives.
b. Must be expensed in the period incurred.
c. May be either capitalized or expensed when incurred, depending upon the
materiality of the amounts involved.
d. Must be expensed in the period incurred unless development costs
incurred qualify under the recognition criteria set forth under PAS 38.

92. Which of the following costs should be excluded from research and
development expense?
a. Modification of the design of a product
b. Acquisition of R & D equipment for 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
(AICPA)

93. If a company 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(s) of construction.
b. depreciation deducted as part of research and development costs.
c. depreciation or immediate write-off depending on company policy.
d. an expense at such time as productive research and development has been
obtained from the facility.
(AICPA)

94. What is the proper time or time period over which to match the cost of an
intangible asset with revenues if it is likely that the benefit of the asset will
last for a determinate but very long period of time?
a. Forty years.
b. Fifty years.
c. Shorter of legal life and useful life
d. At such time as diminution in value can be quantitatively determined.
(Adapted)

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95. How should research and development costs be accounted for according to
current standards?
a. Must be capitalized when incurred and then amortized over their
estimated useful lives.
b. Must be expensed in the period incurred unless contractually
reimbursable.
c. May be either capitalized or expensed, when incurred, depending upon
the facts
d. Must be expensed in the period incurred unless it can be clearly
demonstrated that the research expenditure will have significant future
benefits.
(AICPA)

96. The current trend in the accounting treatment for research and development
costs is to
a. Capitalize all costs as assets when incurred and amortize when revenue
are earned.
b. Treat all costs as current expenses as incurred.
c. Capitalize selectively, and predetermine the conditions that would require
capitalization as well as those that would be written off as current
expenses.
d. Accumulate all costs in a special intangible asset account until a
determination can made as to the degree of future benefits.
(AICPA)

97. Research and development costs, under prevailing practice, may be accounted
for as follows:
a. Research and development costs related to successful projects should be
capitalized; others expensed.
b. Research and development costs related to unsuccessful projects should
be capitalized; others expensed.
c. Research and development costs should be expensed as incurred.
d. Research and development costs should be allocated between successful
and unsuccessful projects.
e. Research and development costs, whether related to successful or
unsuccessful projects, should be capitalized.
(AICPA)

98. An activity that would be expensed currently as research and development

costs is the
a. Testing in search for or evaluation of product or process alternatives.
b. Adaptation of an existing capability to a particular requirement or
customer’s need as a part of continuing commercial activity.
c. Legal work in connection with patent applications or litigation, and the
sale or licensing of patents.
d. Engineering follow-through in an early phase of commercial production.
(AICPA)

99. Which of the following expenses can be capitalized?

I. Research costs incurred in developing a new medicine.
II. Purchase of intangibles for R&D activities which have alternative future
uses.
III. Salaries of research personnel.
a. II only b. I & II c. III only d. none of them

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100. Are the following statements true or false, according to PAS 38 Intangible
assets?
(1) Expenditure during the research phase of a project may sometimes be
capitalized as an intangible asset.
(2) Expenditure during the development phase of a project may sometimes be
capitalized as an intangible asset.
a. False False b. False True c. True False d. True True
(ACCA)

101. Are the following statements in relation to development true or false,

according to PAS38 Intangible assets?
(1) The products being developed should have already been put into
commercial production or use.
(2) Development involves the application of research findings.
a. False False b. False True c. True False d. True True
(ACCA)

102. Which of the following is not considered as research and development

costs?
a. Testing in search for product alternatives
b. Legal work on patent application
c. Modification of design of a process
d. Searching for application of new research findings
e. The design of tools, molds and dies involving new technology.

103. According to PAS 38, which of the following is true for an acquiring
company in connection with in-process research and development held by an
acquired company at the date of acquisition?
a. The amount that has been spent on these projects is expensed, but any
value in the project in excess of the amount spent is capitalized by the
acquiring company.
b. The value of in-process research and development is capitalized because
the acquiring company has a clear vision of its value.
c. In-process research and development is still research and development
and the value is always expensed by the acquiring company.
d. The value of in-process research and development is expensed unless it
has a direct connection with a product or asset owned by the acquiring
company.
(Adapted)

104. AJAR Airline purchased airline gate rights at SLIGHTLY OPEN

International Airport for ₱2,000,000 with a legal life of five years. However,
AJAR has the ability and right to extend the rights every ten years for an
indefinite period of time. Over what period of time should AJAR amortize the
gate rights?
a. 5 years. c. 40 years.
b. 15 years d. The rights should not be amortized.
(AICPA)

105. The following statements relate to accounting for intangible assets.

Choose the incorrect statement.
a. Because it has an indefinite life, a trademark need not be amortized.
b. If a company purchases a competing patent to ensure revenue-generating
capability of a previously owned patent, the cost of the purchased patent
should be expensed at the time of purchase.

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c. The process of assigning the cost of an intangible asset to operations in a

systematic and rational manner is called amortization.
d. Goodwill may represent the excess of the cost of an acquired company
over the sum of the fair values assigned to identifiable assets acquired less
liabilities assumed.

106. Consider the following statements and state whether they are correctly
stated or not.
I. Goodwill is recorded by accountants only if it is purchased.
II. A copyright’s legal life is 30 years and it gives its owner protection against
writings and literary productions being reproduced illegally.
a. I b. II c. I and II d. neither I nor II

107. A patent purchased from another entity which had held it for 3 years
should be amortized over
a. the asset’s remaining useful life, not to exceed 37
b. any number not to exceed to 40
c. 17 years
d. the asset’s remaining useful life, not to exceed 17
(Adapted)

108. Which of the following intangible assets should be amortized over the
periods of estimated benefit?
a. research and development costs related to a successful product
b. goodwill arising from the purchase of an existing business
c. costs incurred in organizing a corporation
d. patent right purchased from an inventor
(AICPA)

109. In a case of a patent infringement suit, the suit may be either successful or
lost. The results of the legal decision are accounted for as follows:
a. if successful, debit the cost of the lawsuit to patent expense.
b. if lost, debit the cost of the lawsuit to extraordinary loss.
c. if lost, write the balance in the patent account.
d. after recognizing the results of the lawsuit as an expense, amortize the
remaining balance in the patent occur over its remaining economic life.
(Adapted)

110. A purchased patent has a remaining legal life of 15 years. It should be

a. Expensed in the year of the acquisition.
b. Amortized over 15 years regardless of its useful life.
c. Amortized over its useful life if less than 15 years.
d. Not amortized.
(AICPA)

111. A corporation which incurs costs in defending a patent in an infringement

suit should:
a. expense currently the costs of all suits.
b. capitalize only the costs of unsuccessful suits.
c. capitalize only the costs of successful suits.
d. capitalize the cost of all such suits.
(Adapted)

112. Should the following fees associated with the registration of an internally
developed patent be capitalized? (Item#1) Legal fees; (Item#2) Registration
fees

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a. No, No b. No, Yes c. Yes, No d. Yes, Yes

(AICPA)

113. Which of the following statements concerning patents is correct?

a. Legal costs incurred to successfully defend an internally developed patent
should be expensed immediately in the period incurred.
b. Legal fees and other direct costs incurred in registering a patent should be
capitalized and amortized on a straight-line basis over a five-year period.
c. Research and development contract services purchased from others and
used to develop a patented manufacturing process should be capitalized
and amortized over the patent’s economic life.
d. Research and development costs incurred to develop a patented item
should be capitalized and amortized on a straight-line basis over
seventeen years.
(AICPA)

114. Which of the following amounts incurred in connection with a trademark

should be capitalized?
Cost of successful defense Registration fees
a. no yes
b. yes no
c. no no
d. yes yes
(AICPA)

115. Which of the following should not be capitalized as part of the cost of an
internally developed patent?
a. costs to develop the product or process to be patented
b. patent registration fees
c. legal fees incurred in successfully defending a patent infringement suit.
d. legal fees associated with registration of the patent
e. a and c
(AICPA)

116. The cost of purchasing patent rights for a product that might otherwise
have seriously competed with one of the purchaser's patented products
should be
a. charged off in the current period.
b. amortized over the legal life of the purchased patent.
c. added to factory overhead and allocated to production of the purchaser's
product.
d. amortized over the remaining estimated life of the original patent
covering the product whose market would have been impaired by
competition from the newly patented product.
(AICPA)

117. Inventor Corporation was granted a patent on a product on January 1,

20x1. To protect its patent, the corporation purchased on January 1, 2x10 a
patent on a competing product which was originally issued on January 10,
20x6. Because of its unique plant, Inventor Corporation does not feel the
competing patent can be used in producing a product. The cost of the
competing patent should be
a. amortized over a maximum period of 20 years.
b. amortized over a maximum period of 16 years.
c. amortized over a maximum period of 11 years.
d. expensed in 2x10.

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(AICPA)

118. Plaintiff, Inc. went to court this year and successfully defended its patent
from infringement by a competitor. The cost of this defense should be
charged to
a. patents and amortized over the legal life of the patent.
b. legal fees and amortized over 5 years or less.
c. expenses of the period.
d. patents and amortized over the remaining useful life of the patent.
(AICPA)

119. Which of the following is not an intangible asset?

a. Trade name d. Copyrights
b. R&D expense e. No answer
c. Franchise
(AICPA)

120. Which of the following intangible assets should not be amortized?

a. Copyrights c. Perpetual franchises
b. Customer lists d. No answer
(AICPA)
121. Under current PFRSs, when a patent is amortized, the credit is made to
a. the patent account.
b. an accumulated amortization account.
c. a deferred credit account.
d. an expense account.
(Adapted)

122. Which of the following confers exclusive right to conduct business in a

particular territory
a. trademark b. franchise c. patent d. copyright
(Adapted)

123. An exclusive right or privilege received by a business or individual to

perform certain business functions or use certain products or services is
referred to as:
a. patents b. copyright c. franchise d. none of these

124. If a franchise becomes worthless prior to the end of its estimated useful
life, the unamortized balance in the franchise account should be written off as
a(n):
a. impairment loss c. prior period adjustment
b. operating expense d. change in estimate
(Adapted)

125. Which of the following statements is incorrect?

a. An intangible asset acquired by issuance of ordinary shares should
generally be valued at the fair value of the intangible asset.
b. Amortization of intangible assets involves an adjusting entry that should
not be reversed in the next accounting period.
c. An unidentifiable asset developed internally is never recognized in the
accounts as an asset.
d. All annual payments made by a franchisee to the franchiser for assistance
should be capitalized as part of the cost of the franchise.
(Adapted)

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(AICPA)

Disclosures
133. Which of the following disclosures is not required by PAS 38?
a. Useful lives of the intangible assets.
b. Reconciliation of carrying amount at the beginning and the end of the
year.
c. Contractual commitments for the acquisition of intangible assets.
d. Fair value of similar intangible assets used by its competitors.
(Adapted)

134. All of the following are required disclosures for intangible assets except
a. Whether the useful lives are indefinite or finite and, if finite, the useful
lives or the amortization rates used
b. Amortization methods used for intangible assets with finite useful lives
c. Gross carrying amount and any accumulated amortization (aggregated
with accumulated impairment losses) at the beginning and end of the
period
d. A reconciliation of the carrying amount at the beginning and end of the
period showing increases and decreases to intangible assets and related
accumulated amortization and accumulated impairment loss.
e. Net carrying amount of intangible assets. Accumulated amortization is not
required to be disclosed because periodic amortization is deducted
directly from the related asset account.

Chapter 20 - Suggested answers to theory of accounts questions

1. E 21. D 41. B 61. D 81. A 101. B 121. B
2. E 22. D 42. D 62. D 82. D 102. B 122. B
3. A 23. A 43. D 63. D 83. C 103. B 123. C
4. C 24. A 44. A 64. B 84. B 104. D 124. A
5. D 25. A 45. D 65. B 85. C 105. B 125. D
6. C 26. D 46. C 66. E 86. A 106 A 126. C
7. C 27. D 47. D 67. D 87. B 107. D 127. C
8. C 28. B 48. D 68. B 88. A 108. D 128. A
9. A 29. B 49. C 69. C 89. A 109. A 129. D
10. C 30. C 50. C 70. D 90. D 110. C 130. A
11. C 31. B 51. C 71. D 91. D 111. A 131. A
12. D 32. D 52. D 72. A 92. C 112. D 132. A
13. D 33. D 53. D 73. A 93. B 113. A 133. D
14. D 34. A 54. A 74. D 94. C 114. A 134. E
15. D 35. C 55. A 75. D 95. B 115. E
16. A 36. A 56. D 76. A 96. B 116. D
17. A 37. C 57. B 77. B 97. C 117. C
18. D 38. E 58. D 78. D 98. A 118. C
19. D 39. D 59. A 79. C 99. A 119. B
20. D 40. D 60. B 80. D 100. B 120. C

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