PRACTICAL ACCOUNTING 1 REVIEW 2ND SEMESTER
PAS 38 INTANGIBLE ASSETS
1. The critical attributes of an intangible asset
include
a. Identifiability (separable/arising from
contractual/other legal rights)
b. Control (power to obtain benefits)
c. Future economic benefits
(revenues/reduced costs)
d. All of these
2. An intangible asset shall be recognised if, and only
if it is probable that the expected future economic
benefits that are attributable to the asset will flow
to the entity and the cost of the asset can be
measured reliably. The probability criterion is
always considered to be satisfied when acquired-
a. Separately b. In a business
combination
c. Either a or b d. None of these
3. PAS 38 defines research as-
a. The original, planned investigation
undertaken with the prospect of gaining
new scientific or technical knowledge
and understanding
b. The application of research findings to a
plan or design for production of new or
substantially new materials, devices, etc.
before the start of commercial
production or use
c. The search for mineral resources
(minerals, oil, natural gas, similar non
regenerative resources) after the entity
obtained legal rights to explore
d. The determination of technical feasibility
and commercial viability of extracting the
mineral resource
4. When an internally generated asset meets the
recognition criteria, the appropriate treatment for
costs previously expensed is-
a. Reinstatement
b. No adjustment, cannot be reinstated
c. Included in the cost of development of
the asset
d. Capitalize into the cost of asset and adjust
RE
5. Rist company provided the following R&D
expenditures:
Depreciation on the bldg. housing R&D activities
1.5M
Cost of market research studies
1M
Current period depreciation on machine for R&D
500T
Salary of R&D Director
1.2M
Salary of Vice Pres. Who spends ¼ of his time
Overseeing R&D activities
2.4M
Pension costs for salary of R&D director
50T
Pension cost for salary of Vice President
100T
The R&D expense for the current period
is-
a. 3,875,000 c. 4,875,000
b. 5,750,000 d. 3,800,000
6. Which of the following describes a patent?
a. Gives the holder exclusive right to use,
manufacture, sell a product or process
without interference/infringement from
others
b. A word, phrase, or symbol that
distinguishes or identifies a particular
entity of product.
c. The exclusive and assignable legal right,
given to the originator for a fixed number
of years, to print, publish, perform, film,
or record literary, artistic, or musical
material.
d. A contractual arrangement under which
the franchisor grants the franchisee the
right to sell certain products or services,
to use certain trademarks, perform
certain functions, usually within
designated geographical area.
e. An asset representing the future
economic benefits arising from other
assets acquired in a business combination
that are not individually identified and
separately recognised.
7. The residual value of an intangible asset is-
a. Always zero
b. Zero, unless a third party commits to buy
it at the end of its useful life, and there is
an active market for the asset
c. Zero, unless a third party commits to buy
it at the end of its useful life, or there is
an active market for the asset
d. May be increased for computing
amortization
8. A patent should be amortised over-
a. 20 years
b. Useful life
c. Useful life or 20 years, whichever is
longer
d. Useful life or 20 years, whichever is
shorter
9. Legal fees incurred by a company in defending its
patent rights should be expensed when the
outcome is-
Successful Unsuccessful
a. Yes Yes
b. Yes No
c. No No
d. No Yes
10. An entity purchases a trademark and incurs the ff:
One-time purchase price 100T
Non-refundable taxes 5T
Training sales personnel on its usage 7T
Research costs associated with purchase 24T
Legal costs to register the trademark 10.5T
Salaries of admin personnel 12T
The entity should recognise the asset in the
amount of-
a. 100T c. 146,500
b. 115,500 d. 158,500
11. Marianne Corp acquired a fast-food franchise for
50T cash down payment and gave an additional
150T, 12%, one-year, noninterest-bearing note
payable. Marianne also agreed to pay the
franchisor 100T per year for the next 10 years for
promotional campaigns and related services. The
cost of the franchise is-
a. 183,395 c. 933,935
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PRACTICAL ACCOUNTING 1 REVIEW 2ND SEMESTER
b. 950,000 d. 1,183,935 c. When the software is not an integral part
12. Copyrights should be amortised over of the hardware, it is treated as an
a. Their legal life intangible
b. The life of the creator plus fifty years d. The operating system of a computer is
c. 20 years treated as an intangible asset
d. Their useful life or legal life, whichever is 16. Keesciah Company incurred costs to develop and
shorter produce a routine, low-risk computer software as
13. Dario Company purchased a customer database follows:
and a formula for a new fuel substitute for a total Completion of detail program design
of 100T. He uses the expected cash flow approach 1.5M
(probability-weighted PV) for estimating the fair Cost for coding and testing to establish
value of his intangibles. The appropriate interest
Technological feasibility
rate is 5%.
500T
Customer database:
Other coding costs after tech. feasibility
Outcome 1- 20% probability of CF of 10T at the 2.5M
end of
Other testing costs after tech. feasibility
each year for 5 years. 2M
Outcome 2- 30% probability of CF of 2T at the end Cost of producing product masters for training
of 3M
each year for 4 years. Duplication of computer software
Outcome 3- 50% probability of CF of 200 at the 4M
end of Packaging materials
each year for 3 years. 1M
Formula: What amount should be capitalized as software
Outcome 1- 10% probability of CF of 50T at the cost subject to amortization?
end of a. 7.5M c. 4.5M
each year for 10 years. b. 9.5M d. 8M
Outcome 2- 30% probability of CF of 30T at the 17. On Jan 1, 2019, Kuh company capitalised 10M for
end of a new computer software with an economic life of
each year for 4 years. 4 years. Sales for 2019 for the software product
amounted to 4M. The total sales over its
Outcome 3- 60% probability of CF of 10T at the
economic life is expected to be 20M. However,
end of
the pattern of future sales cannot be determined
each year for 3 years.
reliably. Kuh should record amortization at-
How much should be recognised as customer a. 2.5M c. 5M
database? b. 2M d. 0
a. 11,060 c. 11,295 18. Internally-generated goodwill is prohibited from
b. 13,137 d. 0 recognition in the FS because-
How much should be recognised for the formula? a. It is not identifiable
a. 88,705 c. 11,295 b. It is not measurable
b. 86,863 d. 0 c. It is not comparable to others
14. PAS 38 prohibits the recognition of the ff d. It is not prudent to recognise intangibles
internally-generated identifiable intangibles- NOTE: DETERMINATION OF GOODWILL:
i. Brands  Specific attributes approach- attributes and
ii. Mastheads components of GW are identified and valued
iii. Publishing titles accordingly
iv. Customer lists  Indirect valuation approach- difference between
a. I, ii, iv c. ii,iii,iv purchase price and FV of identifiable net assets (used
b. Ii, iv d. I,ii,iii,iv in AFAR)
15. Which of the following is incorrect regarding  Excess earnings approach
intangibles contained in or on a physical  Purchase of average earnings
substance such as a compact disc (in case of a FV of net assets x Normal rate of return = Normal
software), legal documentation (in case of license earnings
or patent) or film? Average earnings – Normal earnings = Excess
a. In determining whether an asset that earnings
incorporates both intangible and tangible Excess earnings x # of years = Goodwill
elements should be treated as PPE or as  Capitalization of average excess earnings
an intangible, an entity used judgment to Excess earnings/Capitalization rate = Goodwill
assess which element is more significant  Capitalization of average earnings
b. Computer software for a computer- Average earnings/Capitalization rate= Net assets
controlled machine that cannot operate incl. GW
without that specific software is an Net assets incl. GW- Net assets excl. GW =
integral part of that machine, and is Goodwill
treated as PPE  PV of average excess earnings
Excess earnings x PVF using appropriate rate =
Goodwill

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PRACTICAL ACCOUNTING 1 REVIEW 2ND SEMESTER
19. The owners of Winsmarl Co are planning to sell costs would remain in its December 2018 Financial
the business. The cumulative earnings for the past position?
5 years was 9.5 M. The normal return on average a. 6M c. 20M
net assets is 15%. Appropriate interest rate is 8%. b. 14M d. 42M
The net assets for the past 5 years were: 18M, 24. Which is incorrect regarding the full cost method
28M, 23M, 21M, and 20 M (current value of net of accounting for exploration and evaluation
assets). What is the amount of goodwill… expenditures in the oil and gas industry?
 Using the capitalization of average earnings a. All costs incurred in searching for,
method? acquiring, developing the reserves in a
 Using purchase of average earnings method? large geographic cost center or pool are
 Using the capitalization of average excess capitalised.
earnings? b. The cost pools are typically depleted on a
 Using the PV of average excess earnings country basis as production occurs
method? c. If exploration efforts in the geological
formation are wholly unsuccessful, the
PFRS 6 EXPLORATION FOR, AND EVALUATION OF costs are expensed.
MINERAL RESOURCES (WASTING ASSETS) d. Capitalised costs are depleted on a field-
by-field basis as production occurs.
20. An exploration and evaluation asset shall no
25. In accordance with IFRIC 20, production stripping
longer be classified as such when-
costs shall be accounted for
a. The technical feasibility and commercial
a. In accordance with PAS 2- to the extent
viability of extracting a mineral resource
that the benefit from the stripping activity
are not clear.
is realised in the form of inventory
b. The technical feasibility and commercial
produced
viability of extracting a mineral resource
b. As stripping activity asset- to the extent
are demonstrable.
the benefit has improved access to ore,
c. The exploration and evaluation assets are
the entity shall recognise these costs as
impaired
noncurrent assets
d. The exploration and evaluation assets are
c. As expense when incurred
revalued
d. Any of these
21. The Dario Corp is involved in the exploration of
26. In 2016, Rist purchased property with natural
mineral resources. Its policy is to recognise
resources for 28M. The property had a residual
exploration assets and measure them initially at
value of 5M. The company is required to restore
cost. At the end of 2018, the following were
the property for 2M.
extracted from his FS:
In 2016, he spent 1M in development costs and
Trenching and sampling expenditure 100M
3M on buildings which will not have utility after
Drilling rigs used for exploration, CA 200M
natural resources are removed. In 2017, 1M was
Drilling rigs used for exploration, deprec. 30M
spent for additional development.
Roads to access exploration site 350M
Tons extracted Tons remaining
Expenditures relating to subs. Development
2016 0 10M
340M
2017 3M 7M
At what amount should intangible exploration
2018 3.5M 2M
assets be initially recognised in his FS?
The depletion for 2018-
a. 100 M c. 300M
a. 10.15M c. 14.245M
b. 130 M d. Nil
b. 12.04M d. 9.45 M
22. Keesciah Co acquired property in 2018 which
27. Kris co purchased a tract of resource land in 2017
contains mineral deposit, worth 20M. After that,
for 39.6M with an estimated 1.2M units. Salvage
the ff were incurred:
value is 1.2M. Fixed installations cost 9.6M with
Exploration cost 13M
an 8-year life. Mining equipment cost 12.4M, with
Dev cost relating to drilling of wells
a 4-year life. In 2018, 120T units were extracted.
10M
This was ½ of the annual extraction which can be
Dev cost relating to production equip. 15M
expected following the first year of operations.
For 2M, Keesciah is legally required to restore the
Total depreciation for 2018 should be-
land to a condition appropriate for resale. The
a. 4.06M c. 2.2 M
property is estimated to be sold for 5M following
b. 3.1M d. 960T
the extraction. Estimates indicate 5M tons of
28. Chess Co provided the following at the end of
mineral to be extracted.
2018:
The company extracted 600T tons in 2018 and
Wasting asset at cost 80M
sold 450T tons. In 2018, what amount of
Accumulated depletion 20M
depletion is included in cost of sales?
Retained earnings 10M
a. 4.8M c. 3.6M
Capital Liquidated 15M
b. 5.4M d. 4.05M
Depletion based on 100T units extracted
23. During 2018, Marianne Corp incurred 4M in
at P50 per unit 5M
exploration costs for each of 15 oil wells drilled in
Inventory of resource deposit (20T units) 2M
2018. Of the 15 wells, 10 were dry holes.
Compute for the maximum amount of dividend
Marianne uses the successful efforts method of
that Chess can declare on December 2018.
accounting. Assuming she depletes 30% of the oil
a. 20M c. 15M
discovered in 2018, what amount of exploration

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PRACTICAL ACCOUNTING 1 REVIEW 2ND SEMESTER
b. 14M d. 13M 12/31/17 12/31/18
FV-COD 715T 420T
PAS 36 IMPAIRMENT OF ASSETS VIU 750T 445T
29. Which of the following best describes impairment The company’s 2018 income statement will
loss? report-
a. The removal from statement of financial a. Amortization expense 235T
position b. Amortization expense 250T, Impairment loss
b. Systematic allocation of cost over useful 55T
life c. Amortization expense 235T, Impairment loss
c. Amount by which recoverable amount 25T
exceeds the carrying amount d. Impairment loss 70T
d. Amount by which carrying amount 36. At reporting date, the CA of a CGU was considered
exceeds the recoverable amount (the to be impaired by 1M. The unit included: Land-
higher of an asset’s FV-COD and its VIU) 3M; Building-2M; GW-500T. The FV of land is
30. Costs of disposal do not include determined to be 2.8M. The carrying amount of
a. Legal costs building after impairment loss is
b. Stamp duty and similar transaction taxes a. 2M c. 1.7M
c. Costs of removing the asset b. 1.8M d. 1.6M
d. Direct incremental costs to bring the One of the CGUs of Rist corp is associated with the
asset into condition for sale manufacturing of wine barrels. At 2017, Rist believed that
e. None of these the assets were impaired. The CA were:
31. Which is correct in determining recoverable
Buildings, net (60T dep per annum) 240T
amount?
Machinery, net (45T dep per annum) 180T
a. If the CA is less than FV-COD or VIU, it is
not necessary to calculate the GW 15T
recoverable amount Inventory 80T
b. If FV-COD cannot be determined, then the Receivables, net 35T
recoverable amount is the VIU Cash 20T
c. For assets to be disposed of, recoverable Total 570T
amount is FV-COD only
The VIU of the CGU is 535T. the receivables were
d. All of these
considered to be collectible. During 2018, Rist increased
32. Dario corp has a group of machines with
the depreciation charge on buildings to 65T per annum,
aggregate cost and accumulated depreciation as
and to 50T per annum for machinery. The inventory was
follows:
sold by the end of 2018. The recoverable amount of the
Machinery 90M
CGU by December 2018 was 20T greater than the CA of
Accumulated Depr 30M
the unit.
The machines have an average remaining life of 4
37. How much is the CA of buildings at 12/31/17?
years. The FV-COD is 45M. The financial forecast
a. 230,400 c. 231,028
reveals the following for the next 4 years:
b. 224,300 d. 228,571
Cash inflows Cash outflows
38. How much is the CA of machinery at 12/31/18?
2019 30M 12M
a. 135T c. 131,322
2020 32M 17M
b. 131,793 d. 123,271
2021 26M 14M
2022 16M 6M
Compute for the impairment loss assuming an 8%
rate
a. 13,598,700 c. 15M
b. 14,299,350 d. 0
33. Autobots bottling purchased 800T for a trademark
with an indefinite life. The cash flows expected to
be generated is either 30T per year (80%
probability) or 60T per year (20% probability). The
appropriate risk-free rate is 5%. The appropriate
risk-adjusted rate is 10%. The impairment loss
a. 440T c. 200T
b. 320T d. 80T
34. When deciding on the discount rate that should
be used, which factors should be taken into
account?
a. Pretax rates
b. TVM
c. Risks that relate to the asset for which
cash flow estimated have not been
adjusted.
d. All of these
35. In 2017, Marianne corp purchased a patent with a
cost of P940T, useful life of 4 years.

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