IKKA Classes F7-Test 3

IKKA Classes
F7- Test 3
Q1 Which of the following could be classified as development expenditure in M’s statement of

financial position as at 31 March 20Y0 according to IAS 38 Intangible Assets?
A. $120,000 spent on developing a prototype and testing a new type of propulsion
system. The project needs further work on it as the system is currently not viable.
B. A payment of $50,000 to a local university’s engineering faculty to research new
environmentally friendly building techniques.
C. $35,000 developing an electric bicycle. This is near completion and the product will
be launched soon. As this project is first of its kind it is expected to make a loss.
D. $65,000 developing a special type of new packaging for a new energy-efficient light
bulb. The packaging is expected to reduce M’s distribution costs by $35,000 a year.
Q2 Which TWO of the following factors are reasons why key staff cannot be capitalised as an
intangible asset by an entity?
A They do not provide expected future economic benefits
B They cannot be controlled by an entity
C Their value cannot be measured reliably
D They are not separable from the business as a whole
Q3 Amco Co carries out research and development. In the year ended 30 June 20X5 Amco Co
incurred total costs in relation to project X of $750,000, spending the same amount each
month up to 30 April 20X5, when the project was completed. The product produced by the
project went on sale from 31 May 20X5. The project had been confirmed as feasible on 1
January 20X5, and the product produced by the project was expected to have a useful life of
five years.
What is the carrying amount of the development expenditure asset as at 30 June 20X5?
A $295,000
B $725,000
C $300,000
D $0
Q4 Dempsey Co owns a pharmaceutical business with a year-end of 30 September 20X4.

Dempsey Co commenced the development stage of a new drug on 1 January 20X4.
$40,000 per month was incurred until the project was completed on 30 June 20X4, when
the drug went into immediate production. The directors became confident of the project’s
success on 1 March 20X4. The drug has an estimated life span of five years and timeapportionment
is used by Dempsey where applicable.
What amount will Dempsey charge to profit or loss for development costs, including any
amortisation, for the year ended 30 September 20X4?
A $12,000
B $98,667
C $48,000
D $88,000
Q5 Which of the following statements relating to intangible assets is true?

A All intangible assets must be carried at amortised cost or at an impaired amount,
they cannot be revalued upwards.
B The development of a new process which is not expected to increase sales revenues
may still be recognised as an intangible asset.
C Expenditure on the prototype of a new engine cannot be classified as an intangible
asset because the prototype has physical substance.
D Impairment losses for a cash generating unit are first applied to goodwill and then to
other intangible assets before being applied to tangible assets.
The following information is to be used for questions 6 and 7.

A division of an entity has the following balances in its financial statements:
Goodwill $700,000
Plant $950,000
Building $2,300,000
Intangibles $800,000
Other net assets $430,000
Following a period of losses, the recoverable amount of the division is deemed to be $4 million.
A recent valuation of the building showed that the building has a market value of $2.5 million. The
other net assets are at their recoverable amount. The entity uses the cost model for valuing
building and plant.
Q6 To the nearest thousand, what is the balance on the building following the impairment
review?
A $2,300,000
B $2,500,000
C $2,027,000
D $1,776,000
Q7 To the nearest thousand, what is the balance on plant following the impairment review?
A $862,000
B $837,000
C $689,000
D $261,000
Q8 A vehicle was involved in an accident exactly halfway through the year. The vehicle cost
$10,000 and had a remaining life of 10 years at the start of the year. Following the accident,
the expected present value of cash flows associated with the vehicle was $3,400 and the
fair value less costs to sell was $6,500.
What is the recoverable amount of the vehicle following the accident?
$________________
Q9 The net assets of Fyngle, a cash generating unit (CGU), are:

$
Property, plant and equipment 200,000
Allocated goodwill 50,000
Product patent 20,000
Net current assets (at net realisable value) 30,000
–––––––
300,000
–––––––
As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000.
What would be the value of Fyngle’s property, plant and equipment after the allocation
of the impairment loss?
A $154,545
B $170,000
C $160,000
D $133,333
Q10 Which of the following is NOT an indicator of impairment?

A Advances in the technological environment in which an asset is employed have an
adverse impact on its future use.
B An increase in interest rates which increases the discount rate an entity uses.
C The carrying amount of an entity’s net assets is higher than the entity’s number of
shares in issue multiplied by its share price.
D The estimated net realisable value of inventory has been reduced due to fire damage
although this value is greater than its carrying amount.

IKKA Classes F7-Test 3

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Q1 Which of the following could be classified as development expenditure in M’s statement of

Q4 Dempsey Co owns a pharmaceutical business with a year-end of 30 September 20X4.

Q5 Which of the following statements relating to intangible assets is true?

The following information is to be used for questions 6 and 7.

Q9 The net assets of Fyngle, a cash generating unit (CGU), are:

Q10 Which of the following is NOT an indicator of impairment?

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