CHAPTER 35: INTANGIBLE ASSETS a. Costs of introducing a new product or service.

b. Costs of conducting a business in a new location.

Question 35-1 c. Administration and other general overhead costs.
1. Which condition must be met for an item to be recognized as an d. Directly attributable costs of preparing the asset for the intended
intangible asset other than goodwill? use.
Answer: D
a. The fair value can be measured reliably. 5. An intangible asset acquired by way of government grant may be
b. The item is part of an activity aimed at gaining new scientific or initially recorded at
technical knowledge. Answer: C
c. The item is expected to be used in the production or supply of goods a. Fair value
or services. b. Nominal amount or zero plus any directly attributable expenditure
d. The item is nonmonetary, identifiable and lacks physical substance. c. Either fair value or nominal amount or zero plus directly
attributable expenditure
2. An intangible asset is identifiable when d. Neither fair value nor nominal amount
Answer: C
a. It is separable. 6. Which statement is true in relation to internally generated intangible
b. It arises from contractual and other legal right. asset?
c. It is either separable or it arises from contractual and other legal Answer: D
right. a. Internally generated brand, masthead, publishing title, and
d. It is neither separable nor it arises from contractual and other legal customer list shall not be recognized as an intangible asset.
right. b. The cost of internally generated intangible asset comprises all
directly attributable costs necessary to create, produce and prepare
3. Which statement is true in relation to control by the entity of the the asset for the intended use.
intangible asset? c. Internally generated goodwill shall not be recognized as an
Answer: D intangible asset.
a. The capacity of the entity to control the economic benefits from an d. All of these statements are true.
intangible asset would normally stem from legal rights that are
enforceable in a court of law. 7. The costs of an internally generated asset includes all of the following,
b. The skill of employees arising out of the benefits of training costs except
cannot be recognized as intangible asset. Answer: D
c. Market share and customer loyalty cannot normally be recognized a. Cost of materials and services used in generating the intangible
as intangible asset because an entity cannot control the action of asset.
customers. b. Compensation costs of personnel directly engaged in generating the
d. All of these statements are true. asset.
c. Fees to register a legal right.
4. The cost of a separately acquired intangible asset comprises the d. Expenditure on training staff to operate the asset.
purchase price and
Answer: D
Question 35-2:
1. After initial recognition, an intangible asset shall be measured using
Answer: C
a. Cost model
b. Revaluation model
c. Cost model or revaluation model
d. Cost model or fair value model
2. An entity that acquired an intangible asset may use the revaluation
model for subsequent measurement only when
Answer: B
a. The useful life of the intangible asset can be reliably determined.
b. An active market exists for the intangible asset.
c. The cost of the intangible asset can be measured reliably.
d. The intangible asset is a monetary asset.
3. Which of the following statements is true concerning amortization and
impairment of intangible assets?
Answer: D
a. Intangible assets with finite useful life are amortized over the useful
life.
b. Intangible assets with finite useful life 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. All of these statements are true.
4. An intangible asset is regarded as having an indefinite useful life when
Answer: A
a. There is no foreseeable limit to the period over which the asset is
expected to generate net cash inflows to the entity.
b. There is a foreseeable limit to the period over which the asset is
expected to generate net cash inflows to the entity.
c. The useful life of the intangible asset arises from contractual right.
d. The useful life of the intangible asset arises from legal right.
5. What is the appropriate method of amortizing intangible asset?
Answer: A
a. The straight line method, unless the pattern in which the assets
economic benefits are consumed by the entity can be determined
reliably.
b. The double declining balance in all circumstances.
c. A subjective amount of periodic amortization without regard to any
particular method.
d. The straight line method in all circumstances.
6. The residual value of an intangible asset with a finite useful life shall be
assumed zero, except
Answer: C
a. When there is a commitment by a third party to purchase the asset
at the end of the useful life.
b. When there is an active market for the asset and it is probable that
such market will exist at the end of the useful life.
c. When there is a commitment by a third party to purchase the asset
at the end of useful life or there is an active market for the asset
and it is probable that such market will exist at the end of useful life.
d. There are no exceptions.
7. One factor that is not considered in determining the useful life of an
intangible asset is
Answer: A
a. Residual value
b. Provision for renewal or extension
c. Legal life
d. Expected action of competitors
8. Factors in determining the useful life of an intangible asset include all,
except
Answer: D
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 the legal life
d. The amortization method
Question 35-3:
5. Once recognized, intangible assets can be carried at
1. Which does not qualify as an intangible asset? Answer: B
Answer: D a. Cost less accumulated amortization
a. Computer software b. Cost less accumulated amortization and impairment losses
b. Registered patent c. Revalued amount less accumulated amortization
c. Copyright d. Cost plus a notional increase in fair value since the intangible asset
d. Notebook computer is acquired

2. Which of the following would qualify as an intangible asset? 6. Which is not a consideration in determining the useful life of an
Answer: D intangible asset?
a. Advertising and promotion Answer: C
b. Tuition fees paid to employees who decide to enroll in an M.B.A. a. Legal, regulatory or contractual provision
program while working with the entity b. Provision for renewal or extension
c. Operating losses during the initial stages of the project c. Initial cost
d. Legal costs paid to lawyers to register a patent d. Obsolescence

3. The recognition criteria for an intangible asset include which of the 7. Amortization of an intangible asset with a finite useful life shall
following conditions? commence when
Answer: D Answer: C
a. The intangible asset must be measured at cost. a. It is first recognized as an asset.
b. The cost can be measured reliably. b. It is probable that it will generate future economic benefits.
c. It is probable that future economic benefit will arise from use. c. It is available for use.
d. It is probable that future economic benefit will arise from use and d. The cost can be identified with reasonable certainty.
the cost can be measured reliably.
8. Which disclosure is not required with respect to intangible assets?
4. Which of the following statements in relation to intangible assets is Answer: D
true? a. Useful life of the intangible asset
Answer: D b. Reconciliation of carrying amount at the beginning and the end of
a. Intangible assets cannot be treated as having an indefinite useful the year
life. c. Contractual commitment for the acquisition of intangible asset
b. Intangible assets with a finite useful life shall be measured initially d. Fair value of similar intangible asset used by the competitor
at cost and tested annually for impairment.
c. Intangible assets acquired in a business combination shall only be
recognized if the assets have already been recognized by the Question 35-4:
acquiree.
d. Intangible assets acquired in a business combination shall be 1. Intangible assets are reported
recognized separately from goodwill. Answer: C
a. With an accumulated amortization account
 b. Under property, plant and equipment 1. Patent and trade secret are an example of which general category of
c. As a separate line item intangible asset?
d. All of these are allowed Answer: D
a. Market-related
2. Intangible assets are classified as b. Customer-related
Answer: B c. Artistic-related
a. Amortizable and unamortizable d. Technology-based
b. Limited life and indefinite life
c. Specifically identifiable and goodwill type 2. A patent should be amortized over
d. Legally restricted and goodwill type Answer: D
a. Twenty years
3. Intangible assets with indefinite useful life are tested for impairment b. The useful life
Answer: B c. The useful life or twenty years, whichever is longer
a. Quarterly at the quarterly reporting date d. The useful life or twenty years, whichever is shorter
b. Annually at the annual reporting date
c. Biannually at the reporting date 3. When an entity successfully defended a patent from infringement by a
d. There is no definite guideline for impairment competitor, the cost of successful litigation should be
Answer: C
4. The major problem for an intangible asset is determining a. Amortized over the legal life of the patent.
Answer: D b. Amortized over five years.
a. Fair value c. Expensed in the period when incurred.
b. Separability d. Amortized over the remaining useful life of the patent.
c. Residual value
d. Useful life 4. The cost of purchasing right for a product that might otherwise have
seriously competed with the purchasers patented product should be
5. Operating losses incurred during the start-up years of a new entity Answer: D
should be a. Charged off in the current period.
Answer: A b. Amortized over the legal life of the purchased patent.
a. Accounted for like any other operating loss c. Added to factory overhead.
b. Written off directly against retained earnings. d. Amortized over the remaining useful life of the patent for the
c. Capitalized and amortized over five years. product whose market would have been impaired by competition
d. Capitalized as an intangible asset and amortized over twenty years. from the newly patented product.

CHAPTER 36: SPECIFIC INTANGIBLE ASSETS Question 36-2:

Question 36-1: 1. An entity should recognized goodwill at what point?

Answer: B
a. Costs have been incurred in the development of goodwill.
 b. Goodwill has been created in the purchase of a business.
c. The entity expects a future benefit from the creation of goodwill.
d. The fair value exceeds the carrying amount.
2. Which statement does not accurately describe the accounting for
goodwill?
Answer: A
a. Goodwill should be amortized over 40 years.
b. Goodwill can only be recorded as a result of a business combination.
c. The cost of internally developing goodwill should be recognized as
expense as incurred.
d. Goodwill should be examined at least annually for impairment.
3. Which accurately describes the accounting for goodwill?
Answer: D
a. Recorded at cost and amortized over 40-year period
b. Recorded at cost and amortized over a 10-year period
c. Recorded at cost and tested for impairment every three years
d. Recorded at cost and tested for impairment on an annual basis and
more often if certain events occur
4. Goodwill should be tested for impairment at which level?
Answer: A
a. Each reporting unit
b. Each acquisition unit
c. Each identifiable long-term asset
d. Entire business as a whole
5. Goodwill should be tested periodically for impairment
Answer: D
a. For the entity as a whole
b. At the subsidiary level
c. At the industry segment level
d. At the operating segment level or one level below
6. An entity is performing an annual test of the impairment of goodwill for
a cash generating unit. It has determined that the fair value of the unit
exceeds the carrying amount. Which of the following statements is true
concerning the test of impairment?
Answer: A
a. Impairment is not indicated and no additional analysis is necessary.
b. Goodwill should be written down as impaired.
c. The assets and liabilities should be valued to determine if there has
been an impairment of goodwill.
d. Goodwill should be retested at the entity level.
7. An entity reported goodwill in last years statement of financial
position. How should the entity account for the reported goodwill in the
current year?
Answer: A
a. Determined whether fair value of the reporting unit is less than the
carrying amount and report an impairment loss on goodwill in the
income statement.
b. Determine the current years amortizable amount and report the
amortization expense.
c. Determine whether the fair value of the reporting unit is greater
than the carrying amount and report the recovery of any previous
impairment in the income statement.
d. Determine whether the fair value of the reporting unit is greater
than the carrying amount and report a gain on goodwill in the
income statement.
8. An impairment loss recognized for goodwill
Answer: A
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 be reversed in a subsequent year.
Question 36-3:
1. The intangible asset goodwill may be
Answer: A
a. Capitalized only when purchased.
b. Capitalized either when purchased or created internally.
 c. Capitalized only when created internally.
d. Written off directly against retained earnings.
2. Goodwill shall be tested for impairment
Answer: B
a. If there is an indication of impairment
b. Annually
c. Every five years
d. On the acquisition of a subsidiary
3. Which intangible asset should be reported as a separate line item in the
statement of financial position?
Answer: A
a. Goodwill
b. Franchise
c. Patent
d. Trademark
4. Why is goodwill referred to as a master valuation account?
Answer: B
a. Goodwill represents the purchase price of an acquired business.
b. Goodwill is the excess of the purchase price of the acquired
business over the fair value of the net identifiable assets of the
acquiree.
c. The value of a business is computed without consideration of
goodwill and then goodwill is added to arrive at a master valuation.
d. Goodwill is the only account that is based on fair value.
2. Which of the following should not be capitalized as cost of trademark?
Answer: A
a. Cost of successful litigation of the trademark
b. Registration with Intellectual Property Office
c. Design cost
d. Legal fee
3. What is the legal life of trademark?
Answer: C
a. 10 years
b. 20 years
c. 10 years and renewable after every 10 years.
d. 20 years and renewable after every 20 years.
4. Which statement is incorrect in relation to trademark?
Answer: D
a. A trademark can be regarded as an intangible asset with an
indefinite useful life considering the almost automatic renewal of
the legal life.
b. A trademark is an identifiable asset.
c. A trademark with indefinite useful life is not amortized but tested
for impairment at least annually and whenever there is an
indication of impairment.
d. A trademark with indefinite useful life is amortized and tested for
impairment whenever there is an indication of impairment at the
end of reporting period.

Question 36-5:
Question 36-4:
1. A copyright is an example of which general category of intangible asset?
1. A trademark is an example of which general category of intangible Answer: C
asset? a. Market-related
Answer: A b. Customer-related
a. Market-related c. Artistic-related
b. Customer-related d. Contract-based
c. Artistic-related
d. Contract-based 2. Franchise and broadcast right are an example of which general category
of intangible asset?
 Answer: D 7. An airline entity purchased airline gate right at an international airport
a. Market-related with a legal life of five years. However, the entity has the ability and
b. Customer-related right to extend the right every ten years for an indefinite period of time.
c. Artistic-related Over what period of time should the entity amortize the gate right?
d. Contract-based Answer: D
a. 5 years
3. Customer list and order backlog are an example of which general b. 15 years
category of intangible asset? c. 40 years
Answer: B d. The rights should not be amortized.
a. Market-related
b. Customer-related 8. Which statement is correct concerning start up costs?
c. Artistic-related Answer: A
d. Contract-related a. Costs of start up activities including organization costs should be
expensed as incurred.
4. Copyright should be amortized over b. Costs of start up activities including organization costs should be
Answer: D capitalized and amortized on a straight-line basis over the economic
a. The legal life life of the entity.
b. The life of the creator plus fifty years c. Costs of start up activities including organization costs should be
c. Twenty years capitalized and expensed only if an impairment exists.
d. The useful life or legal life, whichever is shorter d. Costs of start up activities should be capitalized and amortized on a
straight-line basis over the economic life of the entity while
5. Which of the following intangible assets should not be amortized? organization costs should be expensed as incurred.
Answer: C
a. Copyright
b. Customer list CHAPTER 37: RESEARCH AND DEVELOPMENT COST
c. Perpetual franchise Question 37-1:
d. All of the intangible assets should be amortized
1. Research activities include all of the following, except
6. Which of the following should be expensed as incurred by the Answer: D
franchisee for a franchise with finite useful life? a. Search for application of research finding or other knowledge.
Answer: D b. Search for product or process alternative.
a. Amount paid to the franchisor for the franchise c. Formulation and design of the possible product or process
b. Payment to an entity, other than the franchisor, for that entitys alternative.
franchise d. Design, construction and testing of preproduction prototype and
c. Legal fees paid to the franchisees lawyers to obtain the franchise model.
d. Periodic payments to the franchisor based on the franchisees
revenue. 2. Development activities include all of the following, except
Answer: D
 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.
3. Which of the following is not one of the criteria which must be met
before development costs can be capitalized?
Answer: C
a. The entity has sufficient financial resources to complete the project.
b. The entity intends to complete the project and either use or sell the
intangible asset.
c. The entity can reliably identify the research costs incurred to bring
the project to economic feasibility.
d. The project has achieved technical feasibility.
4. Which of the following statements is true about development cost?
Answer: C
a. Development cost must be expensed.
b. Development cost is always deferred and expensed against future
revenue.
c. Development cost may be capitalized as an intangible asset in very
restrictive situations.
d. Development cost is recorded as component of other
comprehensive income.
5. A dot-com entity has recently completed a highly publicized research
and development project. Which of the following statements is the
most accurate?
Answer: B
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 would qualify as research activities.
6. Which of the following is the proper treatment of the cost of equipment
used in research and development activities that will have alternative
future use?
Answer:
a. Expensed in the year in which the research and development
project started.
b. Capitalized and depreciated over the term of the research and
development project.
c. Capitalized and depreciated over the estimated useful life of the
equipment.
d. Either capitalized or expensed depending on the term of the
research and development project.
7. Which is not considered a research and development activity?
Answer: A
a. Routine on-going 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
Question 37-2:
1. Which research and development costs should be capitalized and
amortized over current and future periods?
Answer: A
a. Research and development general laboratory building
b. Inventory used for a specific research project
c. Administrative salaries allocated to research
d. Research findings purchased from another entity to aid a particular
research project currently in process
2. If an entity constructs a laboratory building to be used as a research and
development facility, the cost of the laboratory building is matched
against earnings as
Answer: B
a. Research and development expense in the period of construction.
 b. Depreciation deducted as part of research and development
expense.
c. Depreciation or immediate writeoff depending on accounting
policy.
d. An expense at such time as productive research has been obtained
from the facility.
3. A research and development activity for which the cost would be
expensed as incurred is
Answer: A
a. Design, construction and testing of preproduction prototype and
model
b. Quality control during commercial production
c. Periodic design change to existing product
d. Adaptation of an existing capability to a particular requirement or
customer need
4. Which is a research and development cost?
Answer: B
a. Research and development performed under contract for others
b. Development or improvement of technique and process
c. Offshore oil exploration that is the primary activity of an entity
d. Market research related to a major product for the entity
5. Which is an example of activities that would be excluded from research
and development costs?
Answer: A
a. Quality control during commercial production including routine
testing of product
b. Laboratory research aimed at discovery of new knowledge
c. Design, construction and testing of production prototype and
model
d. Testing in search for or valuation of product or process alternative
6. An activity that would be expensed currently as research and
development costs is
Answer: C
a. Engineering follow-through in an early phase of commercial
production
b. Legal work in connection with patent application and the licensing
of patent
c. Testing in search for or evaluation of product or process alternative
d. Adaptation of an existing capability to a particular requirement or
customer need as a part of continuing commercial activity
7. At the beginning of the current year, an entity purchased equipment for
use in developing a new product. The entity uses 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
Answer: A
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
Question 37-3:
1. How should research and development costs be accounted for?
Answer: D
a. Must be capitalized when incurred and then amortized over the
useful life.
b. Must be expensed in the period incurred.
c. May be either capitalized or expensed when incurred depending
upon the materiality.
d. Must be expensed in the period incurred unless it can be clearly
demonstrated that the expenditures will have alternative future use
or unless contractually reimbursable.
2. Which of the following would be considered research and
development?
Answer: D
a. Routine effort to refine an existing product
b. Periodic alteration to existing production line
 c. Marketing research to promote a new product
d. Construction of prototype
3. Which of the following costs should not be capitalized?
Answer: D
a. Acquisition cost of equipment to be used on current and future
research projects.
b. Engineering cost incurred to advance the product to the full
production stage.
c. Cost incurred to file for patent.
d. Cost of testing prototype before economic feasibility has been
demonstrated.
4. Which of the following costs should be excluded from research and
development expense?
Answer: C
a. Modification of the design of a product.
b. Acquisition of research and development 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.
5. Which of the following should not be considered research and
development activity?
Answer: A
a. Adaptation of an existing capability to a particular requirement or
customer need
b. Application of research finding or other knowledge to a plan for a
new product
c. Laboratory research aimed at discovery of new knowledge
d. Conceptual formulation and design of possible product alternative
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
exists
d. Salaries of research staff
7. Which of the following research and development costs should be
capitalized and amortized over current and future periods?
Answer: B
a. Labor and material costs incurred in building a prototype 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
Question 37-4:
1. The proper accounting for costs incurred in creating computer software
is
Answer: B
a. To capitalize all costs until the software is sold.
b. To charge research and
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6. Which of the following costs should be capitalized?

Answer: B
a. Acquisition cost of equipment to be used on current research
project only