Polytechnic University of the Philippines

Freeport Area of Bataan Branch

Mariveles, Bataan

MODULE 1 - INTANGIBLE ASSETS

OVERVIEW

This module covers Intangible Assets. It aims to guide the student in gaining full undertanding and application of accounting principles and standards relating
to its nature and composition of accounts, recognition, initial and subsequent measurement and valuation and the disclosure requirements in reporting.

LEARNING OUTCOMES (LO)

By the end of this module, the students

will be able to:
1 - Understand the nature of intangibles per PAS 38 5 - Recognize impairment of Intangible Assets per PAS 36
2 - Account for the acquisition and amortization of Intangible Assets 6 - Learn the internal control measures over Intangible Assets
3 - Account for subsequent expenditures affecting Intangible Assets 7 - Determine presentation of Intangible Asssets on the statement of financial position
4 - Understand accounting for research and development costs 8 - Identify the required disclosures for intangible assets.

READING STRATEGY
All students will be encouraged to read the chapter topic of the required reading material. Further readings are also recommended for additional information regading the topic.
opportunities within the curriculum to develop their information retrieval and
evaluation skills in order to identify such resources effectively
Required reading:
Robles, N. & Empleo, P. (2019) The Intermediate Accounting Series, Volume 2, Millenium Books,
Inc.
Chapter 4 - Intangible Assets

Further reading:
IAS 38: Intangible Assets, https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/
IAS 36: Impairment of Assets https://www.ifrs.org/issued-standards/list-of-standards/ias-36-impairment-of-assets/

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 LEARNING PLAN
WEEK 1
TASK ACTIVITIES / STRATEGIES TIME TO COMPLETE

Task 1: ASSIGNED READING Read through Chapter 4 of the course textbook and use the activities below
as learning guide.

1 - Nature of Intangible Assets (LO1) Read the definition and be able to identify and elaborate the recognition criteria of
Intangible Assets

2- Examples of Intangible Assets (LO1) Cite and discuss examples of Intangible Assets

3- Initial Recognition (LO2) Identify the costs to include in the initial measurement of Intangible Assets depending
on the conditions of its acquisition. Learn how to account for the different acquisition
scenarios.

4- Research and Development Costs Explain the difference by way of examples between research and development. costs.
and Internally Generated Intangible Identify the accounting issues involved in research and development and how it affects 2 - 3 hours
Asset (LO4) the cost measurement of internally generated Intangible Assets

5- Development Costs as an Identify the citeria for the recognition of development cost as an Intangible Asset.
Intagible Asset (LO4)

6- Recognition of an Expense (LO3) Discuss your understanding of the exemption to the rule of recognizing expenditures
on Intangible Assets as expense when incurred

7- Subsequent Expenditures (LO3) Discuss and illustrate the rules concerning subsequent expenditures on Intangible
Assets.

8- Measurement after initial recognition Discuss the rules involving the measurement of Intangible Assets after recognition
(LO2)

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 Go over the course content below and answer the review questions after the topic
Task 2: Course Content (Week 1) 1 -2 hours
introduction.

WHAT IS AN INTANGIBLE ASSET

An identifiable, nonmonetary asset without physical substance.

ELABORATION AND INTERPRETATION OF THE DEFINITION

An asset MUST meet ALL of the following definition criteria:

1. Identifiability - An asset meets the identifiability criterion when it is capable of being separated from the entity and sold, transferred, licensed, or
rented either individually or in combination with a related contract, asset, or liability.

- Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or other
rights or obligations.

2. Control - An entity controls an asset if it has the power to obtain the future economic benefits flowing from the underlying resource and to
restrict the access of others to those benefits.

3. Future - Future economic benefits may include revenue from the sale of products or services, cost savings or other benefits resulting from the
Economic Benefit use of the asset by the entity.

WHAT ARE EXAMPLES OF INTANGIBLE ASSETS

1- Patent - An exclusive right granted by the government to an inventor to control the manufacture, use or sale of an invention.

Accounting for patent acquisitions

Acquired separately - the cost includes the purchase price and any directly attributable expenditure necessary in preparing the asset for the intended use.
Internally developed - the cost includes the licensing and other related legal fees in securing the patent rights. Any research and development costs are not capitalized.
Legal fees and other costs of successfully prosecuting or defending a patent shall be expensed immediately.

2- Copyright - A legal protection against infringement granted to an author of literary, musical or atistic work throught his lifetime plus 50 years
Accounting for copyright acquisitions
The cost assigned to copyright consists of all expenses incurred in the production of the work including those required to estabhsh or obtain the right
Where the copyright is purchased, the cost includes the cash paid, and directly attributable cost necessary for the intended use.

NOTE: Under the Intellectual Property Code of the Philippines, the term of protection for copyright is during the lifetime of the author and for 50 years after death.

3-Trademark- A trademark is a symbol, sign, slogan or name used to mark a product to distinguish it from other products which enhance marketability.
Accounting for trademark acquisitions
Acquired separately - the cost includes the purchase price plus costs directly attributable to the acquisition.
Internally developed - the cost includes expenditures required to establish it, including filing fees, registry fees and other expenses incurred in securing the
trademark such as design cost of the trademark

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NOTE: Under the Intellectual Property Code of the Philippines, the legal life of trademark is 10 years and may be renewed for periods of 10 years each.
Accordingly, the cost of trademark is NOT AMORTIZED but subject to test for impairment at least annually.
Whether the litigation against the trademark is successful or unsuccessful, the litigation cost is expensed outright.
4-Franchise - Under a franchise agreement, one party called the franchisor grants certain rights to another party called the franchisee.
Accounting for franchise acquisitions
The cost of the franchise includes the lump sum payment for the franchise and all legal fees and expenses incurred in connection with the franchise acquisition.
The lump sum payment is known as the initial franchise fee and therefore the initial cost of the franchise.
If the franchise agreement requires the franchisee to make periodic payment to the franchisor based on the franchisees revenue, such payment is treated as
outright expense. This payment is known as the periodic franchise fee.

5- Leasehold - the right acquired by the lessee by virtue of a contract of lease to use the specific property owned by the lessor for a definite period of time in
consideration for a certain sum of money.

6-Customer List - A customer list is a customer database containing the name, contract information, order history and other vital and social statistics, such as birth,
death and even sickness.
Accounting for customer list acquisitions
The cost of customer list acquired through purchase includes purchase price and any directly attributable cost of preparing the asset for its intended use.
The costs of internally generated customer list are recognized as expenses.

7-Goodwill -Goodwill arises when earnings exceed normal earnings by reason of good name, capable staff and personnel, high credit standing, reputation for
fair dealings, reputation for superior products, favorable location and a list of regular customers.
Only goodwill acquired in a business combination can be capitalized as an intangible asset. Internally developed goodwill is not recorded
Accounting for Goodwill is covered in IFRS 3.

Review Theory Questions Series 1

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

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

2- PAS 38 states that an asset meets the identifiability criterion in the definition of an intangible asset when it:

I. It 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

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3 - All of the following are essential characteristics of an intangible asset, except
a. Identifiability b. Control c. Future economic benefits d. Subject to amortization

4 - The definition of an intangible asset

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.

5-An asset that cannot be sold, transferred, licensed, rented, or exchanged separately is called
a.goodwill b.unidentifiable c. identifiable d. no such thing

6- 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

7- 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.

8- 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. right to utilize another entity’s business concept

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HOW ARE INTANGIBLE ASSETS INITIALLY RECOGNIZED?
An item may be recognized as an intangible asset when it meets the definition of an intangible asset (see previous) and meets asset recognition criteria
a. It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity.
b.The cost of the asset can be measured reliably

WHAT IS THE INITIAL MEASUREMENT OF INTANGIBLE ASSETS?

An intangible asset shall be measured INITIALLY at COST. Measurement of cost depends on how the intangible asset is acquired.
It could be acquired through:
1 - SEPARATE ACQUISITION
The cost of a separately acquired intangible asset comprises:
a .Purchase price including import duties and non-refundable purchase taxes after deducting trade discounts, rebates and other similar discounts
b. Any directly attributable costs necessary to bring the asset for its intended use
2 - DEFERRED SETTLEMENT BASIS
If the payment for an intangible asset is deferred beyond normal credit terms, the cost is the cash price equivalent. The difference between the cash price
and the total payments is recognized as interest expense over the credit period.
3 - ACQUISITION THROUGH BUSINESS COMBINATION
If an intangible asset is acquired in a business combination, the cost of the intangible asset is based on the fair value on the date of acquisition.
The fair value of an intangible asset acquired in a business combination can be measured with sufficient reliability to be recognized separately from goodwill.
4 - ACQUISITION THROUGH GOVERNMENT GRANT
An intangible asset may be acquired by way of a government grant, free of charge or for nominal consideration. This may occur when a government transfers
or allocates to an entity intangible assets such as airport right and license to operate radio or TV. The intangible asset acquired by way of government grant
may be initially recorded at either:
a. Fair value b. Nominal amount or zero, plus any expenditure that is directly attributable to preparing the asset for its
intended use
5 - EXCHANGE
If the exchange has commercial substance, the intangible asset acquired initially measured using the following order of priority:
a. Fair value of the asset given up plus cash paid or minus cash received
b. Fair value of the asset received
c. Carrying amount of asset given up plus cash paid or minus cash received

If the exchange lacks commercial substance, the intangible asset is initially measured at the
a. Carrying amount of asset given up plus cash paid or minus cash received

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6- INTERNALLY GENERATED
The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable
of operating it in the manner intended by management.

WHAT ARE THE EXAMPLES OF DIRECTLY ATTRIBUTED COSTS (DAC) OF AN INTERNALLY DEVELOPED INTANGIBLE ASSETS?
Examples of directly attributable costs are:
1- Cost of materials and services used or consumed in generating the intangible asset.
2- Cost of employee benefits arising from the generation of the intangible asset.
3- Fees to register a legal right.
4- Amortization of patents and licenses that are used to generate the intangible asset.

However, the following expenditures are not components of the cost of an internally generated intangible asset therefore are EXPENSED:
1 - Selling, administrative and other general overhead, unless directly attributed to the asset.
2 - Clearly identified inefficiencies and initial operating losses incurred before an asset achieves planned performance.
3- Expenditure on training staff to operate the asset.

Review Theory Questions Series 2

1- 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

2 - At initial recognition, an intangible asset shall be measured

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

3- 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
d. trade discounts and rebates are deducted from the purchase price only when taken

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4- MY Co. acquired an intangible asset from YOU 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 the programmer in installing the software purchased
b. fees of the 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

5- 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

6- 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

7- During the year, UPass Co. received an intangible asset from UPass2 Co. in an exchange transaction that lacks commercial substance.
Which of the following statements is incorrect?

a. Upass should measure the asset received at the carrying amount of the asset given up
b. Upass should not recognize any gain or loss on the sale unless cash is paid on the exchang
c. Upass 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. Upass should not recognize any gain or loss on the sale regardless of whether cash is received or paid.

8- ABC Co. acquired an intangible asset from XYZ Co. during the year. All of the following costs incurred by ABC 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

HOW DO AN ENTITY ASSES WHETER AN INTERNALLY GENERATED INTANGIBLE ASSET MEETS THE CRITERIA FOR
RECOGNITION?
To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation into RESEARCH PHASE
and DEVELOPMENT PHASE

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WHAT IS RESEARCH?
Research is original and planned investigation undertaken with the prospect of gaining scientific or technical knowledge and understanding.
Generally, research costs are EXPENSED. Research activities include:

1- Laboratory research aimed at discovering or obtaining new knowledge

2- Searching for application of research finding and other knowledge
3- Conceptual formulation and design of possible product or process alternatives
4- Testing in search or evaluation of product or process alternatives

WHAT IS DEVELOPMENT ?
Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved material,
device, product, process, system or service, prior to the commencement of commercial production

Development cost may be expensed or capitalized depending on whether certain criteria or conditions are met.

Capitalization of development costs depends if the entity can demonstrate ALL of the following criteria:

1- The technical feasibility of completing the intangible asset so that it will be available for use or sale. This is achieved when a prototype or model is produced.
The entity has completed the testing of the model and it is now convinced that it has a product to sell or use that is significantly better than any other product
available in the market. The entity plans to file a patent application for the product.

2- The intention to complete the intangible asset and use or sell it.

3- The ability to use or sell the intangible asset.

4- How the intangible asset will generate probable future economic benefits. Among other things, the entity shall demonstrate the existence of a market for the
output of the intangible asset or the intangible asset itself.

5- Availability of resources or funding to complete development and to use or sell the asset.

Development activities include:

1- Design, construction and testing of preproduction prototypes and models

2- Design of tools, jigs, molds and dies involving new technology
3- Design, construction and operation of a pilot plant that is not of scale economically feasible for commercial production
4- Design, construction and testing of a chosen alternative for new or improved product or process

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Important Notes
1- If an entity cannot distinguish the research phase from the development phase, the entity shall treat the expenditure as if it were incurred in the research phase only.

2- In process R&D acquired separately or in a business acquisition is recognized as asset even if a component is a research. Accordingly, the subsequent expenditure
is recognized as an expense if it is a research expenditure. The subsequent expenditure is added to the carrying amount of the in-process research and development project
if it is a development expenditure that satisfies the recognition criteria for an intangible asset

3-The cost of PPE, materials and intangible assets acquired and used in R&D activities is included in R&D expense as follows:

* If the item of PPE, material or intangible asset has an alternative use, it is part capitalized and will form part of R&D expense upon usage or consumption (e.g. depreciation)
* If the item of PPE, material or intangible asset has no alternative use, the cost is expensed immediately in its entirety as R&D expense

4- Internally generated brands, mastheads, publishing titles, customer lists and goodwill are NOT INTANGIBLE ASSETS but expensed outright.

Review Theory Questions Series 3

1- 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.

2- 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

3- 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.

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4- Which of the following transactions may not give rise to recognition of an intangible asset?
a. BEST Co. acquired BETTER Co. in a business combination. Among the items acquired is an R&D project composed mainly of expenditures incurred
by BETTER 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.

5- Which of the following is true in relation to internally generated intangible assets?

a. Internally generated brand, masthead, publishing title and customer list shall not be recognized as an intangible asset
b. The cost of internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset for
intended use
c. Internally geerated goodwill shall not be recognized as an intangible asset
d. All of these are true

HOW ARE EXPENDITURES ON AN INTANGIBLE ASSET THAT DOES NOT MEET THE RECOGNITION CRITERIA RECORDED?
Expenditures on an intangible asset that does not meet the recognition citeria shall be expensed when incurred.

Examples of expenditures that are expensed when incurred include:

a. Start-up costs
b. Training costs
c. Adevertising and promotionl costs
d. Buiness relocation or reorganization costs

HOW ARE INTANGIBLE ASSETS AFTER INITIAL RECOGNITION MEASURED AND RECORDED?
After initial recognition, an entity shall choose as its accounting policy either the COST MODEL or REVALUATION MODEL.

1- COST MODEL
An intangible asset shall be carried at cost, less any accumulated amortization and any accumulated impairment loss.

2 -REVALUATION MODEL
An intangible asset shall be carried at a revalued amount, less any subsequent amortization and any subsequent accumulated impairment loss.

NOTE: An intangible asset can only be carried at revalued amount if there is an active market for the asset.

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WHAT IS THE CONCEPT OF AMORTIZATION?
Amortization is the systematic allocation of the depreciable amount of an intangible asset over the assets useful life. It is similar to the concept of
depreciation for PPE.

RULE ON AMORTIZATION
ONLY intangible assets with FINITE OR LIMITED LIFE are amortized over their useful life. Intangible assets with INDEFINITE LIFE are NOT AMORTIZED
but are TESTED FOR IMPAIRMENT at least annually and whenever there is an indication that the intangible asset may be impaired

AMORTIZATION PERIOD
Amortization shall begin when the asset is available for use and ceases when the asset is derecognized or when classified as held for sale whichever is earlier.

WHAT ARE THE FACTORS CONSIDERED IN AMORTIZATION?

a. AMORTIZABLE AMOUNT - Cost less residual value.

b. USEFUL LIFE - The useful life of an intangible asset must be assessed as either indefinite or finite.
All relevant factors must be considered in the assessment of useful life may include
* Expected usage by the entity and whether it could be used by new management teams
• Product life cycles
• Rates of technical or commercial change
• Industry stability
• Likely actions by competitors
• Legal restrictions
* Whether the useful life is dependent on the useful lives of other assets “Indefinite” does not mean “infinite.” Additionally, assessments should not be made
based on levels of future expenditure over and above that which would normally be required to maintain the asset at its initial standard of performance.

FINITE USEFUL LIFE – An intangible asset has a finite life if the entity can determine reliably the length of or number of production or similar units constituting,
the intangible asset’s useful life. In other words, a limited period of benefit to the entity.

INDEFINITE USEFUL LIFE – An intangible asset shall be regarded by the entity as having indefinite useful life when, based on an analysis of all the relevant factors,
there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.

RESIDUAL VALUE - The residual value of an intangible asset shall be presumed to be zero, except:
1- When a third party is committed to buy the intangible asset at the end of its useful life.
2- When there is an active market for the intangible asset so that its expected residual value can be measured and it is probable that there will be a market for t
he asset at the end of its useful life.

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WHAT IS THE AMORTIZATION METHOD PRESCRIBED BY THE STANDARD?
According to PAS 38, the amortization used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.
If that pattern cannot be determined reliably, the STRAIGHT-LINE METHOD shall be used.

NOTE: Amortization method based on revenue is strictly prohibited. (REVENUE METHOD IS NOT ALLOWED)

WHAT ARE THE AMORTIZATION RULES FOR DIFFERENT INTANGIBLE ASSETS?

Amortization of patent:
* The original cost shall be amortized over the legal life or useful life, whichever is shorter.
* A competitive patent acquired to protect an original patent shall be amortized over the remaining life of the original patent.
* If a related patent is acquired in order to extend the life of the old patent, the cost of the related patent and any unamortized cost of the old patent shall be
amortized over the extended life.

Amortization of franchise:
* Granted for a definite period - amortized over the useful life or definite period, whichever is shorter.
*Granted indefinitely or perpetually - not be amortized but tested for impairment at least annually.

WHAT IS THE JOURNAL ENTRY IN RECORDING AMORTIZATION?

To record amortization expense, debit the amortization amount and credit the accumulated amortization or direct to the intangible account.

Illustration:
Harcott Co. incurs PhP 180,000 in legal costs on January 1, 2019, to acquire a patent. The patent’s useful life is 20 years, amortized on a straight-line basis.
How will Harcott Co. record the transaction at the end of 2019?

Jan.1 Patent 180,000.00

Cash 180,000.00

Dec.31 Amortization 9,000.00 (180,000/20)

Accumulated Amortization
or Patent 9,000.00

AS A RULE, a subsequent expenditure on an intangible asset shall be recognized as EXPENSE.

The reason is that most subsequent expenditures are likely to maintain only the expected future economic benefits embodied in the intangible asset.
However, the subsequent expenditure may be capitalized or added to the cost of the intangible asset if the following recognition criteria for an intangible asset are met:

a- It is probable that future economic benefits that are attributable to the subsequent expenditure will flow to the entity.
b- The subsequent expenditure can be measured reliably.

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Illustration:
Suppose further that Harcott paid PhP 100,000 in the successful defense of the patent at the beginning of 2020. How will Harcott record this event?

Jan.1 Legal fees 100,000.00 * the cost of litigation, whether successful or not, is an outright expense because such cost
Cash 100,000.00 will only maintain and not enhance the originally assessed future benefits of the patent

Dec.31 Amortization 9,000.00 (180,000/20)

Accumulated Amortization
or Patent 9,000.00

Illustration:
Suppose further that Harcott a competing patent with a useful life of 10 years for PhP 200,000 to protect its existing patent at the beginning of 2020.
How will Harcott record this event?

Jan.1 Expense 200,000.00

Cash 200,000.00

Dec.31 Amortization 9,000.00 (180,000/20)

Accumulated Amortization
or Patent 9,000.00

Review Theory Questions Series 4

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

2- The revaluation model may be used for an intangible asset

a. whose fair value can be determined reliably through a valuation technique such as discounted future cash flows
b. which has an active market
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

3- 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.

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4- 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.

5- Which of the following methods of cost allocation cannot be used for intangible assets?
a. Declining balance b. Revenue method c. Units of production d. Straight line

6- AI Co. has an intangible asset, which it estimates will have a useful life of 10 years, while Matic Co. has goodwill, which has an indefinite life.
Which company should report amortization in its financial statements?
AI Co. Matic Co.
a. Yes Yes
b. Yes No
c. No Yes
d. No No

7- 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

8 - 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

WHAT IS THE CONCEPT OF IMPAIRMENT IN INTANGIBLE ASSETS?

Detailed discussion of impairment of intangible assets is within PAS 36 – IMPAIRMENT OF ASSETS
As an introduction, impairment of intangible assets depends whether the asset has a finite or indefinite life.
FINITE LIFE – An intangible asset is tested for impairment when impairment indicators are present.
INDEFINITE LIFE - An intangible asset is tested for impairment ANNUALLY and when impairment indicators are present.

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 Task 3: Problem Solving Refer to your course textbook for the practice problems
Straight Problems

Problem 4-1 Read and solve Problem 4-1 on page 250 of your course textbook.
Video solutions will be posted separately.

Problem 4-3 Read and solve Problem 4-3 on page 251 of your course textbook.
Video solutions will be posted separately.

Problem 4-6 Read and solve Problem 4-6 on page 252-253 of your course textbook.
Video solutions will be posted separately.

Problem 4-11 Read and solve Problem 4-11 on page 255 of your course textbook.
Video solutions will be posted separately.
1- 2 hours
MC Problems

MC 23
MC 27
MC 29 Choose the correct answer for the listed MCQ's
MC 30 Video solutions will be posted separately.
MC 31
MC 36
MC 40
MC 41
MC 42
MC 45
Task 3: Homework

A 10 item MC problems Answer all questions and solve all problems based on the Week 1 Module
will be presented to you synthesizing Click the link below to access the quizzes: 1 hour
the topics learned in Week 1 module. https://my.questbase.com/take.aspx?pin=4001-4666-9932 .

Task 3: Virtual Classroom

Lecture plus homework discussion via Google Meet

Lecture discussion Instructor summarizes the main points of the Week 1 module 3 hours

This exercise will validate the achievement of learning outcomes.

END OF WEEK 1 MODULE

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