CH 12

CHAPTER 12
INTANGIBLE ASSETS
IFRS questions are available at the en o! this "ha#ter$
TR%E&FALSE'Con"e#tual
Ans(er No$ )es"ri#tion
F 1. Characteristics of intangible assets.
F 2. Internally created intangibles.
F 3. Recording internally generated intangibles.
F 4. Amortization of limited-life intangible assets.
T . Amortization of intangible assets.
T !. Amortizing limited-life intangibles.
T ". Acco#nting for a c#stomer list.
F $. Amortization of %atents.
T &. 'odification of an e(isting %atent.
T 1). *asic conce%t of good+ill.
T 11. Internally generated good+ill.
F 12. Recording internally generated good+ill.
T 13. Im%airment of intangibles.
T 14. Recognition of im%airment loss.
F 1. Reco,ery of im%airment loss.
F 1!. Im%airment of intangibles.
F 1". -(am%le of research and de,elo%ment costs.
F 1$. Ca%italizing research and de,elo%ment costs.
F 1&. Recording research and de,elo%ment costs.
F 2). Re%orting intangible assets.
*%LTIPLE CH+ICE'Con"e#tual
b 21 Characteristics of intangible assets.
c 22 Characteristics of intangible assets.
a 23 Characteristics of intangible assets.
c 24. Acco#nting for internally-created intangibles.
a 2. Research and de,elo%ment costs.
b 2!. Amortization methods for intangible assets.
d 2". Cost of intangible asset.
d 2$. Factors in determining #sef#l life.
b
.
2&. Classifying intangible assets.
c 3). Im%airment of intangibles.
a 31. /etermining intangible asset #sef#l life.
b 32. Amortization of intangibles.
d 33. 0atent amortization.
c 34. 0atent amortization.
d 3. 1egal fees associated +ith %atent infringement.
b 3!. Identification of intangible assets.
c 3". Amortization of intangible assets.
a 3$. -ntry to record %atent amortization.
c
.
3&. Trademar2 costs ca%italized.
Test Ban, !or Inter-eiate A""ountin./ Fourteenth Eition
*%LTIPLE CH+ICE'Con"e#tual 0"ont$1
c 4). Com%osition of good+ill.
b 41. 3hen to record good+ill.
d 42. Intangibles d#ring ac4#isition of com%any.
c 43. .e%erability of good+ill.
b
.
44. 5ood+ill as master ,al#ation acco#nt.
a 4. Re%orting of 6negati,e good+ill.6
d 4!. Acco#nting for good+ill.
a 4". Recording good+ill.
b 4$. Im%airment of intangible asset.
d 4&. Reco,erability test.
c
.
). Im%airment test for indefinite-life intangibles.
b
0
1. Acco#nting for organization costs.
a 2. Ca%italization of certain R 7 / costs.
d 3. Acco#nting %rinci%le for R 7 / e(%endit#res.
d 4. Acco#nting for R 7 / costs.
d . Classification of R 7 / e(%ense.
d !. Costs to defend a %atent.
b ". 0#r%ose of R 7 / costs.
d $. Classification of R 7 / costs.
d &. Classification of R 7 / costs.
c !). Costs e(cl#ded from R 7 / e(%ense.
b !1. /e%reciation of laboratory b#ilding #sed in R 7 /.
a !2. 8%erating losses d#ring start-#% %eriod.
d
0
!3. Acco#nting for organization costs.
a
.
!4. Classification of R 7 / e(%ense.
a !. Re%orting good+ill.
b !!. Intangible asset disclos#re.
d !". -(%ense classification.
c
0
!$. Re%orting %atent amortization.
c !&. Re%orting intangibles.
d "). Re%orting e(%enses and losses.
d "1. Re%orting e(%enses and losses.
b "2. Cost of com%#ter soft+are.
d "3. Cost of com%#ter soft+are.
c "4. Amortization of com%#ter soft+are costs.
d ". Amortization of com%#ter soft+are costs.
0
These 4#estions also a%%ear in the 0roblem-.ol,ing .#r,i,al 5#ide.
.
These 4#estions also a%%ear in the .t#dy 5#ide.
9 This to%ic is dealt +ith in an A%%endi( to the cha%ter.
12 & 2
Intangible Assets
*%LTIPLE CH+ICE'Co-#utational
d "!. :al#ation of %atent.
d "". :al#ation of %atent.
c "$. :al#ation of %atent.
d "&. *as2et %#rchase of %atents.
c $). Intangible asset amortization.
c $1. Intangible asset amortization.
b $2. Com%#ting %atent amortization e(%ense.
c $. Calc#late total intangible assets.
b $!. /etermine amo#nt of +orthless %atent to be +ritten off.
b $". Calc#late %atent amortization.
a $$. Calc#late trademar2 amortization.
b $&. Calc#late %atent amortization.
c &). Calc#late good+ill amo#nt.
c &1. Calc#late good+ill amo#nt.
d &2. Calc#late amo#nt of good+ill.
a &3. Calc#late good+ill im%airment.
b &4. 0ro%er acco#nting +hen fair ,al#e of net assets ac4#ired e(ceeds cost.
b &. Calc#late im%airment loss.
c &!. Calc#late %atent carrying ,al#e.
d &". Calc#late %atent carrying ,al#e.
b &$. Calc#late loss on im%airment of good+ill.
b &&. Calc#late loss on im%airment of good+ill.
d 1)). Calc#late R 7 / e(%ense.
c 1)1. Calc#late R 7 / e(%ense.
c 1)2. Calc#late R 7 / e(%ense.
a 1)3. Calc#late R 7 / e(%ense.
a 1)4. Calc#late R 7 / e(%ense.
c 1). Re%orting intangible assets.
c 91)!. Com%#ting com%#ter soft+are costs.
c 91)". Com%#ting com%#ter soft+are costs.
c 91)$. Com%#ting com%#ter soft+are costs.
a 91)&. Com%#ting com%#ter soft+are costs.
b 911). Com%#ting com%#ter soft+are costs.
*%LTIPLE CH+ICE'CPA Aa#te
a 111. /etermine ca%italized %atent costs.
c 112. :al#ation of %atent e(changed for common stoc2.
d 113. :al#ation of %atent e(changed for treas#ry stoc2.
c 114. :al#ation and amortization of a %atent.
c 11. Amortization of a %atent.
d 11!. Amortization of a trademar2.
c 11". Ca%italization of legal fees.
a 11$. Amortization of good+ill.
c 11&. Calc#late R 7 / e(%ense.
a 12). /etermine R 7 / e(%ense for the year.
12 & 2
E3ERCISES
Ite- )es"ri#tion
-12-121 -ssay ; characteristics of intangible assets.
-12-122 -ssay ; cost of intangibles.
-12-123 -ssay ; ty%es of intangibles.
-12-124 -ssay ; definition of and acco#nting for intangibles.
-12-12 -ssay ; stoc2 iss#ed for intangible.
-12-12! -ssay ; costs associated +ith %atents.
-12-12" Intangible assets m#lti%le choice.
-12-12$ -ssay ; intangible asset amortization.
-12-12& -ssay ; #sef#l life of intangibles.
-12-13) -ntries for amortization and im%airment.
-12-131 -ssay - Intangible assets theory.
-12-132 Identify intangibles.
-12-133 -ssay ; 5ood+ill and negati,e good+ill.
-12-134 Carrying ,al#e of %atent.
-12-13 Acco#nting for %atent.
-12-13! -ssay ; good+ill.
-12-13" -ssay ; im%airment.
-12-13$ 5ood+ill im%airment.
-12-13& Im%airment of co%yrights.
-12-14) -ssay ; R 7 / costs.
-12-141 -ssay ; start-#% costs.
-12-142 Ac4#isition of tangible and intangible assets.
-12-143 Com%#ter soft+are amortization.
PR+BLE*S
Ite- )es"ri#tion
012-144 Intangible assets.
012-14 5ood+ill< im%airment.
CHAPTER LEARNING +B4ECTI5ES
1. /escribe the characteristics of intangible assets.
2. Identify the costs to incl#de in the initial ,al#ation of intangible assets.
3. -(%lain the %roced#re for amortizing intangible assets.
4. /escribe the ty%es of intangible assets.
. -(%lain the conce%t#al iss#es related to good+ill.
!. /escribe the acco#nting %roced#res for recording good+ill.
". -(%lain the acco#nting iss#es related to intangible-asset im%airments.
$. Identify the conce%t#al iss#es related to research and de,elo%ment costs.
&. /escribe the acco#nting for research and de,elo%ment and similar costs.
1). Indicate the %resentation of intangible assets and related items.
911. =nderstand the acco#nting treatment for com%#ter soft+are costs.
12 & 6
Intangible Assets
S%**AR7 +F LEARNING +B4ECTI5ES B7 8%ESTI+NS
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learnin. +b9e"tive 1
1. TF 21. 'C 22. 'C 23. 'C 121. - 123. -
2. TF 24. 'C "!. 'C "$. 'C 122. - 12!. -
3. TF 2. 'C "". 'C "&. 'C 12. -
4. TF 2!. 'C
s
2&. 'C $). 'C 12$. - 131. -
. TF 2". 'C 3). 'C $1. 'C 12&. -
!. TF 2$. 'C 32. 'C $2. 'C 13). -
". TF 3. 'C $3. 'C $$. 'C 114. 'C 132. - 144. 0
$. TF 3!. 'C $4. 'C $&. 'C 11. 'C 133. -
&. TF 3". 'C $. 'C 111. 'C 11!. 'C 134. -
33. 'C 3$. 'C $!. 'C 112. 'C 11". 'C 13. -
34. 'C 3&. 'C $". 'C 113. 'C 12". - 13&. -
Learnin. +b9e"tive :
1). TF 41. 'C 43. 'C 124. -
4). 'C 42. 'C 11$. 'C 14. 0
Learnin. +b9e"tive ;
11. TF
s
44. 'C 4!. 'C &). 'C &2. 'C &4. 'C 142. -
12. TF 4. 'C 4". 'C &1. 'C &3. 'C 13!. -
Learnin. +b9e"tive <
13. TF 1. TF 4$. 'C
s
). 'C &!. 'C &$. 'C 13". -
14. TF 1!. TF 4&. 'C &. 'C &". 'C &&. 'C 13$. -
Learnin. +b9e"tive =
1".
1$.
TF
TF
%
1.
2.
'C
'C
3.
4.
'C
'C
.
".
'C
'C
$.
&.
'C
'C
14. 0
Learnin. +b9e"tive >
1&. TF !1. 'C
s
!4. 'C 1)2. 'C 11&. 'C 141. -
!. 'C !2. 'C 1)). 'C 1)3. 'C 12). 'C 144. 0
!). 'C
%
!3. 'C 1)1. 'C 1)4. 'C 14). -
Learnin. +b9e"tive 1?
2). TF !. 'C !". 'C !&. 'C "1. 'C
32. 'C !!. 'C
%
!$. 'C "). 'C 1). 'C
Learnin. +b9e"tive @11
"2. 'C "4. 'C 91)!. 'C 91)$. 'C 911). 'C
"3. 'C ". 'C 91)". 'C 91)&. 'C 143. -
>ote? TF @ Tr#e-False - @ -(ercise
'C @ '#lti%le Choice 0 @ 0roblem
12 & :
TR%E&FALSE'Con"e#tual
1. Intangible assets deri,e their ,al#e from the right AclaimB to recei,e cash in the f#t#re. F
2. Internally created intangibles are recorded at cost. F
3. Internally generated intangible assets are initially recorded at fair ,al#e. F
4. Amortization of limited-life intangible assets sho#ld not be im%acted by e(%ected resid#al
,al#es. F
. .ome intangible assets are not re4#ired to be amortized e,ery year. T
!. 1imited-life intangibles are amortized by systematic charges to e(%ense o,er their #sef#l
life. T
". The cost of ac4#iring a c#stomer list from another com%any is recorded as an intangible
asset. T
$. The cost of %#rchased %atents sho#ld be amortized o,er the remaining legal life of the
%atent. F
&. If a ne+ %atent is ac4#ired thro#gh modification of an e(isting %atent< the remaining boo2
,al#e of the original %atent may be amortized o,er the life of the ne+ %atent. T
1). In a b#siness combination< a com%any assigns the cost< +here %ossible< to the identifiable
tangible and intangible assets< +ith the remainder recorded as good+ill. T
11. Internally generated good+ill sho#ld not be ca%italized in the acco#nts. T
12. Internally generated good+ill associated +ith a b#siness may be recorded as an asset
+hen a firm offer to %#rchase that b#siness #nit has been recei,ed. F
13. All intangibles are s#bCect to %eriodic consideration of im%airment +ith corres%onding
%otential +rite-do+ns. T
12 & ;
Intangible Assets
14. If the fair ,al#e of an #nlimited life intangible other than good+ill is less than its boo2
,al#e< an im%airment loss m#st be recognized. T
1. If mar2et ,al#e of an im%aired asset reco,ers after an im%airment has been recognized<
the im%airment may be re,ersed in a s#bse4#ent %eriod. F
1!. The same reco,erability test that is #sed for im%airments of %ro%erty< %lant< and
e4#i%ment is #sed for im%airments of indefinite-life intangibles. F
1". 0eriodic alterations to e(isting %rod#cts are an e(am%le of research and de,elo%ment
costs. F
1$. Research and de,elo%ment costs that res#lt in %atents may be ca%italized to the e(tent of
the fair ,al#e of the %atent. F
1&. Research and de,elo%ment costs are recorded as an intangible asset if it is felt they +ill
%ro,ide economic benefits in f#t#re years. F
2). Contra acco#nts m#st be re%orted for intangible assets in a manner similar to acc#m#-
lated de%reciation and %ro%erty< %lant< and e4#i%ment. F
True False Ans(ers'Con"e#tual
Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$
1. F !. T 11. T 1!. F
2. F ". T 12. F 1". F
3. F $. F 13. T 1$. F
4. F &. T 14. T 1&. F
. T 1). T 1. F 2). F
*%LTIPLE CH+ICE'Con"e#tual
21. 3hich of the follo+ing does not describe intangible assetsD
a. They lac2 %hysical e(istence.
b$ TheA are !inan"ial instru-ents$
c. They %ro,ide long-term benefits.
d. They are classified as long-term assets.
22. 3hich of the follo+ing characteristics do intangible assets %ossessD
a. 0hysical e(istence.
b. Claim to a s%ecific amo#nt of cash in the f#t#re.
"$ Lon.&live$
d. Eeld for resale.
12 & <
23. 3hich characteristic is not %ossessed by intangible assetsD
a$ PhAsi"al eBisten"e$
b. .hort-li,ed.
c. Res#lt in f#t#re benefits.
d. -(%ensed o,er c#rrent andFor f#t#re years.
24. Costs inc#rred internally to create intangibles are
a. ca%italized.
b. ca%italized if they ha,e an indefinite life.
"$ eB#ense as in"urre$
d. e(%ensed only if they ha,e a limited life.
2. 3hich of the follo+ing costs inc#rred internally to create an intangible asset is generally
e(%ensedD
a$ Resear"h an evelo#-ent "osts$
b. Filing costs.
c. 1egal costs.
d. All of the abo,e.
2!. 3hich of the follo+ing methods of amortization is normally #sed for intangible assetsD
a. .#m-of-the-yearsG-digits
b$ Strai.ht&line
c. =nits of %rod#ction
d. /o#ble-declining-balance
2". The cost of an intangible asset incl#des all of the follo+ing except
a. %#rchase %rice.
b. legal fees.
c. other incidental e(%enses.
$ all o! these are in"lue$
2$. Factors considered in determining an intangible assetHs #sef#l life incl#de all of the
follo+ing except
a. the e(%ected #se of the asset.
b. any legal or contract#al %ro,isions that may limit the #sef#l life.
c. any %ro,isions for rene+al or e(tension of the assetHs legal life.
$ the a-ortiCation -etho use$
2&. =nder c#rrent acco#nting %ractice< intangible assets are classified as
a. amortizable or #namortizable.
b$ li-ite&li!e or ine!inite&li!e$
c. s%ecifically identifiable or good+ill-ty%e.
d. legally restricted or good+ill-ty%e.
12 & =
Intangible Assets
3). Com%anies sho#ld test indefinite life intangible assets at least ann#ally for?
a. reco,erability.
b. amortization.
"$ i-#air-ent$
d. estimated #sef#l life.
.
31. 8ne factor that is not considered in determining the #sef#l life of an intangible asset is
a$ salva.e value$
b. %ro,isions for rene+al or e(tension.
c. legal life.
d. e(%ected actions of com%etitors.
32. 3hich intangible assets are amortizedD
1imited-1ife Indefinite-1ife
a. Ies Ies
b$ 7es No
c. >o Ies
d. >o >o
33. The cost of %#rchasing %atent rights for a %rod#ct that might other+ise ha,e serio#sly
com%eted +ith one of the %#rchaserGs %atented %rod#cts sho#ld be
a. charged off in the c#rrent %eriod.
b. amortized o,er the legal life of the %#rchased %atent.
c. added to factory o,erhead and allocated to %rod#ction of the %#rchaserGs %rod#ct.
$ a-ortiCe over the re-ainin. esti-ate li!e o! the ori.inal #atent "overin. the
#rou"t (hose -ar,et (oul have been i-#aire bA "o-#etition !ro- the ne(lA
#atente #rou"t$
34. *road+ay Cor%oration +as granted a %atent on a %rod#ct on Jan#ary 1< 2))1. To %rotect
its %atent< the cor%oration %#rchased on Jan#ary 1< 2)12 a %atent on a com%eting %rod#ct
+hich +as originally iss#ed on Jan#ary 1)< 2))$. *eca#se of its #ni4#e %lant< *road+ay
Cor%oration does not feel the com%eting %atent can be #sed in %rod#cing a %rod#ct. The
cost of the com%eting %atent sho#ld be
a. amortized o,er a ma(im#m %eriod of 2) years.
b. amortized o,er a ma(im#m %eriod of 1! years.
"$ a-ortiCe over a -aBi-u- #erio o! > Aears$
d. e(%ensed in 2)12.
3. 3riglee< Inc. +ent to co#rt this year and s#ccessf#lly defended its %atent from infringe-
ment by a com%etitor. The cost of this defense sho#ld be charged to
a. %atents and amortized o,er the legal life of the %atent.
b. legal fees and amortized o,er years or less.
c. e(%enses of the %eriod.
$ #atents an a-ortiCe over the re-ainin. use!ul li!e o! the #atent$
12 & >
3!. 3hich of the follo+ing is not an intangible assetD
a. Trade name
b$ Resear"h an evelo#-ent "osts
c. Franchise
d. Co%yrights
3". 3hich of the follo+ing intangible assets sho#ld not be amortizedD
a. Co%yrights
b. C#stomer lists
"$ Per#etual !ran"hises
d. All of these intangible assets sho#ld be amortized.
3$. 3hen a %atent is amortized< the credit is #s#ally made to
a$ the Patent a""ount$
b. an Acc#m#lated Amortization acco#nt.
c. a /eferred Credit acco#nt.
d. an e(%ense acco#nt.
3&. 3hen a com%any de,elo%s a trademar2 the costs directly related to sec#ring it sho#ld
generally be ca%italized. 3hich of the follo+ing costs associated +ith a trademar2 +o#ld
not be allo+ed to be ca%italizedD
a. Attorney fees.
b. Cons#lting fees.
"$ Resear"h an evelo#-ent !ees$
d. /esign costs.
4). In a b#siness combination< com%anies record identifiable intangible assets that they can
reliably meas#re. All other intangible assets< too diffic#lt to identify or meas#re< are
recorded as?
a. other assets.
b. indirect costs.
"$ .oo(ill$
d. direct costs.
41. 5ood+ill may be recorded +hen?
a. it is identified +ithin a com%any.
b$ one "o-#anA a"quires another in a business "o-bination$
c. the fair ,al#e of a com%anyHs assets e(ceeds their cost.
d. a com%any has e(ce%tional c#stomer relations.
12 & 1?
Intangible Assets
42. 3hen a ne+ com%any is ac4#ired< +hich of these intangible assets< #nrecorded on the
ac4#ired com%anyHs boo2s< might be recorded in addition to good+illD
a. A brand name.
b. A %atent.
c. A c#stomer list.
$ All o! the above$
43. 3hich of the follo+ing intangible assets co#ld not be sold by a b#siness to raise needed
cash for a ca%ital %roCectD
a. 0atent.
b. Co%yright.
"$ Goo(ill$
d. *rand >ame.
44. The reason good+ill is sometimes referred to as a master ,al#ation acco#nt is beca#se
a. it re%resents the %#rchase %rice of a b#siness that is abo#t to be sold.
b$ it is the i!!eren"e bet(een the !air value o! the net tan.ible an ienti!iable
intan.ible assets as "o-#are (ith the #ur"hase #ri"e o! the a"quire
business$
c. the ,al#e of a b#siness is com%#ted +itho#t consideration of good+ill and then
good+ill is added to arri,e at a master ,al#ation.
d. it is the only acco#nt in the financial statements that is based on ,al#e< all other
acco#nts are recorded at an amo#nt other than their ,al#e.
4. -aston Com%any and 1ofton Com%any +ere combined in a %#rchase transaction. -aston
+as able to ac4#ire 1ofton at a bargain %rice. The s#m of the fair ,al#es of identifiable
assets ac4#ired less the fair ,al#e of liabilities ass#med e(ceeded the cost to -aston.
0ro%er acco#nting treatment by -aston is to re%ort the e(cess amo#nt as
a$ a .ain$
b. %art of c#rrent income in the year of combination.
c. a deferred credit and amortize it.
d. %aid-in ca%ital.
4!. 0#rchased good+ill sho#ld
a. be +ritten off as soon as %ossible against retained earnings.
b. be +ritten off as soon as %ossible as an e(traordinary item.
c. be +ritten off by systematic charges as a reg#lar o%erating e(%ense o,er the %eriod
benefited.
$ not be a-ortiCe$
12 & 11
4". The intangible asset good+ill may be
a$ "a#italiCe onlA (hen #ur"hase$
b. ca%italized either +hen %#rchased or created internally.
c. ca%italized only +hen created internally.
d. +ritten off directly to retained earnings.
4$. A loss on im%airment of an intangible asset is the difference bet+een the assetHs
a. carrying amo#nt and the e(%ected f#t#re net cash flo+s.
b$ "arrAin. a-ount an its !air value$
c. fair ,al#e and the e(%ected f#t#re net cash flo+s.
d. boo2 ,al#e and its fair ,al#e.
4&. The reco,erability test is #sed to determine any im%airment loss on +hich of the follo+ing
ty%es of intangible assetsD
a. Indefinite life intangibles other than good+ill.
b. Indefinite life intangibles.
c. 5ood+ill.
$ Li-ite li!e intan.ibles$
). *#erhle Com%any needs to determine if its indefinite-life intangibles other than good+ill
ha,e been im%aired and sho#ld be red#ced or +ritten off on its balance sheet. The
im%airment testAsB to be #sed is AareB
Reco,erability Test Fair :al#e Test
a. Ies Ies
b. Ies >o
" No 7es
d. >o >o
1. The carrying amo#nt of an intangible is
a. the fair ,al#e of the asset at a balance sheet date.
b$ the assetDs a"quisition "ost less the total relate a-ortiCation re"ore to ate$
c. e4#al to the balance of the related acc#m#lated amortization acco#nt.
d. the assessed ,al#e of the asset for intangible ta( %#r%oses.
2. 3hich of the follo+ing research and de,elo%ment related costs sho#ld be ca%italized and
de%reciated o,er c#rrent and f#t#re %eriodsD
a$ Resear"h an evelo#-ent .eneral laboratorA builin. (hi"h "an be #ut to
alternative uses in the !uture
b. In,entory #sed for a s%ecific research %roCect
c. Administrati,e salaries allocated to research and de,elo%ment
d. Research findings %#rchased from another com%any to aid a %artic#lar research
%roCect c#rrently in %rocess
12 & 12
Intangible Assets
3. 3hich of the follo+ing %rinci%les best describes the c#rrent method of acco#nting for
research and de,elo%ment costsD
a. Associating ca#se and effect
b. .ystematic and rational allocation
c. Income ta( minimization
$ I--eiate re"o.nition as an eB#ense
4. Eo+ sho#ld research and de,elo%ment costs be acco#nted for< according to a Financial
Acco#nting .tandards *oard .tatementD
a. '#st be ca%italized +hen inc#rred and then amortized o,er their estimated #sef#l
li,es.
b. '#st be e(%ensed in the %eriod inc#rred.
c. 'ay be either ca%italized or e(%ensed +hen inc#rred< de%ending #%on the materiality
of the amo#nts in,ol,ed.
$ *ust be eB#ense in the #erio in"urre unless it "an be "learlA e-onstrate
that the eB#eniture (ill have alternative !uture uses or unless "ontra"tuallA
rei-bursable$
. 3hich of the follo+ing +o#ld be considered research and de,elo%mentD
a. Ro#tine efforts to refine an e(isting %rod#ct.
b. 0eriodic alterations to e(isting %rod#ction lines.
c. 'ar2eting research to %romote a ne+ %rod#ct.
$ Constru"tion o! #rototA#es$
!. 3hich of the follo+ing costs sho#ld be ca%italized in the year inc#rredD
a. Research and de,elo%ment costs.
b. Costs to internally generate good+ill.
c. 8rganizational costs.
$ Costs to su""ess!ullA e!en a #atent$
". Research and de,elo%ment costs
a. are intangible assets.
b$ -aA result in the evelo#-ent o! a #atent$
c. are easily identified +ith s%ecific %roCects.
d. all of the abo,e.
$. 3hich of the follo+ing is considered research and de,elo%ment costsD
a. 0lanned search or critical in,estigation aimed at disco,ery of ne+ 2no+ledge.
b. Translation of research findings or other 2no+ledge into a %lan or design for a ne+
%rod#ct or %rocess.
c. Translation of research findings or other 2no+ledge into a significant im%ro,ement of
an e(isting %rod#ct.
$ all o! the above$
12 & 12
&. 3hich of the follo+ing is considered research and de,elo%ment costsD
a. 0lanned search or critical in,estigation aimed at disco,ery of ne+ 2no+ledge.
b. Translation of research findings or other 2no+ledge into a %lan or design for a ne+
%rod#ct or %rocess.
c. >either a nor b.
$ Both a an b$
!). 3hich of the follo+ing costs sho#ld be excluded from research and de,elo%ment
e(%enseD
a. 'odification of the design of a %rod#ct
b. Ac4#isition of R 7 / e4#i%ment for #se on a c#rrent %roCect only
"$ Cost o! -ar,etin. resear"h !or a ne( #rou"t
d. -ngineering acti,ity re4#ired to ad,ance the design of a %rod#ct to the man#fact#ring
stage
!1. If a com%any constr#cts a laboratory b#ilding to be #sed as a research and de,elo%ment
facility< the cost of the laboratory b#ilding is matched against earnings as
a. research and de,elo%ment e(%ense in the %eriodAsB of constr#ction.
b$ e#re"iation eu"te as #art o! resear"h an evelo#-ent "osts$
c. de%reciation or immediate +rite-off de%ending on com%any %olicy.
d. an e(%ense at s#ch time as %rod#cti,e research and de,elo%ment has been obtained
from the facility.
!2. 8%erating losses inc#rred d#ring the start-#% years of a ne+ b#siness sho#ld be
a$ a""ounte !or an re#orte li,e the o#eratin. losses o! anA other business$
b. +ritten off directly against retained earnings.
c. ca%italized as a deferred charge and amortized o,er fi,e years.
d. ca%italized as an intangible asset and amortized o,er a %eriod not to e(ceed 2) years.
!3. The costs of organizing a cor%oration incl#de legal fees< fees %aid to the state of
incor%oration< fees %aid to %romoters< and the costs of meetings for organizing the
%romoters. These costs are said to benefit the cor%oration for the entityGs entire life. These
costs sho#ld be
a. ca%italized and ne,er amortized.
b. ca%italized and amortized o,er 4) years.
c. ca%italized and amortized o,er years.
$ eB#ense as in"urre.
12 & 16
Intangible Assets
!4. 3hich of the follo+ing +o#ld not be considered an R 7 / acti,ityD
a$ Aa#tation o! an eBistin. "a#abilitA to a #arti"ular require-ent or "usto-erDs
nee$
b. .earching for a%%lications of ne+ research findings.
c. 1aboratory research aimed at disco,ery of ne+ 2no+ledge.
d. Conce%t#al form#lation and design of %ossible %rod#ct or %rocess alternati,es.
!. 3hich of the follo+ing intangible assets sho#ld be sho+n as a se%arate item on the
balance sheetD
a$ Goo(ill
b. Franchise
c. 0atent
d. Trademar2
!!. The notes to the financial statements sho#ld incl#de information abo#t ac4#ired intangible
assets< and aggregate amortization e(%ense for ho+ many s#cceeding yearsD
a. !
b$ :
c. 4
d. 3
!". 3hich of the follo+ing sho#ld be re%orted #nder the K8ther -(%enses and 1ossesL section
of the income statementD
a. 5ood+ill im%airment losses.
b. Trade name amortization e(%ense.
c. 0atent im%airment losses
$ None o! the above$
!$. The total amo#nt of %atent cost amortized to date is #s#ally
a. sho+n in a se%arate Acc#m#lated 0atent Amortization acco#nt +hich is sho+n contra
to the 0atents acco#nt.
b. sho+n in the c#rrent income statement.
"$ re!le"te as "reits in the Patents a""ount$
d. reflected as a contra %ro%erty< %lant and e4#i%ment item.
!&. Intangible assets are re%orted on the balance sheet
a. +ith an acc#m#lated de%reciation acco#nt.
b. in the %ro%erty< %lant< and e4#i%ment section.
"$ se#aratelA !ro- other assets$
d. none of the abo,e.
12 & 1:
"). 3hich of the follo+ing is often re%orted as an e(traordinary itemD
a. Amortization e(%ense.
b. Im%airment losses for intangible assets other than good+ill.
c. Im%airment losses on good+ill.
$ None o! the above.
"1. 3hich of the follo+ing is often re%orted as an e(traordinary itemD
a. Amortization e(%ense.
b. Im%airment losses for intangible assets.
c. Research and de,elo%ment costs.
9"2. 3hich of the follo+ing costs inc#rred +ith de,elo%ing com%#ter soft+are for internal #se
sho#ld be ca%italizedD
a. -,al#ation of alternati,es.
b$ Coin.$
c. Training.
d. 'aintenance.
9"3. 3hen de,elo%ing com%#ter soft+are to be sold< +hich of the follo+ing costs sho#ld be
ca%italizedD
a. /esigning.
b. Coding.
c. Testing.
9"4. Ca%italized costs inc#rred to de,elo% internal #se com%#ter soft+are sho#ld be amortized
#sing the?
a. %ercent-of-re,en#e a%%roach.
b. %ercent-of-com%letion a%%roach.
"$ strai.ht&line a##roa"h.
d. accelerated amortization a%%roach.
9". Ca%italized costs inc#rred +hile de,elo%ing com%#ter soft+are to be sold sho#ld be
amortized #sing the?
a. lo+er of the straight-line method or the %ercent-of-re,en#e method.
b. higher of the %ercent-of-re,en#e method or the %ercent-of-com%letion method.
c. lo+er of the %ercent-of-re,en#e method or the %ercent-of-com%letion method.
$ hi.her o! the strai.ht&line -etho or the #er"ent&o!&revenue -etho$
12 & 1;
Intangible Assets
*ulti#le Choi"e Ans(ers'Con"e#tual
Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$
21. b 2&. b 3". c 4. a 3. d !1. b !&. c
22. c 3). c 3$. a 4!. d 4. d !2. a "). d
23. a 31. a 3&. c 4". a . d !3. d "1. d
24. c 32. b 4). c 4$. b !. d !4. a "2. b
2. a 33. d 41. b 4&. d ". b !. a "3. d
2!. b 34. c 42. d ). c $. d !!. b "4. c
2". d 3. d 43. c 1. b &. d !". d ". d
2$. d 3!. b 44. b 2. a !). c !$. c
*%LTIPLE CH+ICE'Co-#utational
"!. 1ynne Cor%oration ac4#ired a %atent on 'ay 1< 2)12. 1ynne %aid cash of M4)<))) to the
seller. 1egal fees of M1<))) +ere %aid related to the ac4#isition. 3hat amo#nt sho#ld be
debited to the %atent acco#ntD
a. M1<)))
b. M3&<)))
c. M4)<)))
$ E61/???
"". Contreras Cor%oration ac4#ired a %atent on 'ay 1< 2)12. Contreras %aid cash of M3<)))
to the seller. 1egal fees of M&)) +ere %aid related to the ac4#isition. 3hat amo#nt sho#ld
be debited to the %atent acco#ntD
a. M&))
b. M34<1))
c. M3<)))
$ E2:/>??
"$. 'ini Cor%. ac4#ires a %atent from 'a(i Co. in e(change for 2<)) shares of 'ini Cor%.Hs
M %ar ,al#e common stoc2 and M&)<))) cash. 3hen the %atent +as initially iss#ed to
'a(i Co.< 'ini Cor%.Hs stoc2 +as selling at M".) %er share. 3hen 'ini Cor%. ac4#ired the
%atent< its stoc2 +as selling for M& a share. 'ini Cor%. sho#ld record the %atent at +hat
amo#ntD
a. M1)2<))
b. M1)$<")
"$ E112/:??
d. M&)<)))
12 & 1<
"&. Alonzo Co. ac4#ires 3 %atents from .ha4 Cor%. for a total of M3))<))). The %atents +ere
carried on .ha4Hs boo2s as follo+s? 0atent AA? M<)))N 0atent **? M2<)))N and 0atent
CC? M3<))). 3hen Alonzo ac4#ired the %atents their fair ,al#es +ere? 0atent AA? M2)<)))N
0atent **? M24)<)))N and 0atent CC? M!)<))). At +hat amo#nt sho#ld Alonzo record
0atent **D
a. M1))<)))
b. M2))<)))
c. M2<)))
$ E22:/???
$). Jeff Cor%oration %#rchased a limited-life intangible asset for M1)<))) on 'ay 1< 2)1). It
has a #sef#l life of 1) years. 3hat total amo#nt of amortization e(%ense sho#ld ha,e been
recorded on the intangible asset by /ecember 31< 2)12D
a. M -)-
b. M3)<)))
"$ E6?/???
d. M4<)))
$1. Rich Cor%oration %#rchased a limited-life intangible asset for M2")<))) on 'ay 1< 2)1). It
has a #sef#l life of 1) years. 3hat total amo#nt of amortization e(%ense sho#ld ha,e been
recorded on the intangible asset by /ecember 31< 2)12D
a. M -)-.
b. M4<)))
"$ E<2/???
d. M$1<)))
$2. Thom%son Com%any inc#rred research and de,elo%ment costs of M1))<))) and legal
fees of M2)<))) to ac4#ire a %atent. The %atent has a legal life of 2) years and a #sef#l
life of 1) years. 3hat amo#nt sho#ld Thom%son record as 0atent Amortization -(%ense in
the first yearD
a. M -)-.
b$ E 2/???$
c. M !<))).
d. M12<))).
$3. -18 Cor%oration %#rchased a %atent for M1$)<))) on .e%tember 1< 2)1). It had a #sef#l
life of 1) years. 8n Jan#ary 1< 2)12< -18 s%ent M44<))) to s#ccessf#lly defend the %atent
in a la+s#it. -18 feels that as of that date< the remaining #sef#l life is years. 3hat
amo#nt sho#ld be re%orted for %atent amortization e(%ense for 2)12D
a. M41<2)).
b$ E6?/???$
c. M3"<!)).
d. M31<2)).
12 & 1=
Intangible Assets
$4. /an2s Cor%oration %#rchased a %atent for M&))<))) on .e%tember 1< 2)1). It had a
#sef#l life of 1) years. 8n Jan#ary 1< 2)12< /an2s s%ent M22)<))) to s#ccessf#lly defend
the %atent in a la+s#it. /an2s feels that as of that date< the remaining #sef#l life is
years. 3hat amo#nt sho#ld be re%orted for %atent amortization e(%ense for 2)12D
a. M2)!<))).
b$ E2??/???$
c. M1$$<))).
d. M1!<))).
$. The general ledger of :ance Cor%oration as of /ecember 31< 2)12< incl#des the follo+ing
acco#nts?
Co%yrights M 3)<)))
/e%osits +ith ad,ertising agency A+ill be #sed to %romote good+illB 2"<)))
/isco#nt on bonds %ayable ")<)))
-(cess of cost o,er fair ,al#e of identifiable net assets of
Ac4#ired s#bsidiary 44)<)))
Trademar2s &)<)))
In the %re%aration of :anceGs balance sheet as of /ecember 31< 2)12< +hat sho#ld be
re%orted as total intangible assetsD
a. M3)<))).
b. M"<))).
"$ E:;?/???$
d. M$"<))).
$!. In Jan#ary< 2))$< Findley Cor%oration %#rchased a %atent for a ne+ cons#mer %rod#ct for
M&!)<))). At the time of %#rchase< the %atent +as ,alid for fifteen years. /#e to the
com%etiti,e nat#re of the %rod#ct< ho+e,er< the %atent +as estimated to ha,e a #sef#l life
of only ten years. /#ring 2)13 the %rod#ct +as %ermanently remo,ed from the mar2et
#nder go,ernmental order beca#se of a %otential health hazard %resent in the %rod#ct.
3hat amo#nt sho#ld Findley charge to e(%ense d#ring 2)13< ass#ming amortization is
recorded at the end of each yearD
a. M!4)<))).
b$ E6=?/???$
c. M&!<))).
d. M!4<))).
$". /ay Com%any %#rchased a %atent on Jan#ary 1< 2)12 for M!))<))). The %atent had a
remaining #sef#l life of 1) years at that date. In Jan#ary of 2)13< /ay s#ccessf#lly
defends the %atent at a cost of M2")<)))< e(tending the %atentHs life to 12F31F24. 3hat
amo#nt of amortization e(%ense +o#ld Oerr record in 2)13D
a. M!)<)))
b$ E;</:??
c. M"2<))
d. M&)<)))
12 & 1>
$$. 8n Jan#ary 2< 2)12< Olein Co. bo#ght a trademar2 from Royce< Inc. for M1<2))<))). An
inde%endent research com%any estimated that the remaining #sef#l life of the trademar2
+as 1) years. Its #namortized cost on RoyceHs boo2s +as M&))<))). In OleinHs 2)12
income statement< +hat amo#nt sho#ld be re%orted as amortization e(%enseD
a$ E12?/???$
b. M &)<))).
c. M !)<))).
d. M 4<))).
$&. A com%any ac4#ires a %atent for a dr#g +ith a remaining legal and #sef#l life of si( years
on Jan#ary 1< 2)11 for M2<1))<))). The com%any #ses straight-line amortization for
%atents. 8n Jan#ary 2< 2)13< a ne+ %atent is recei,ed for a timed-release ,ersion of the
same dr#g. The ne+ %atent has a legal and #sef#l life of t+enty years. The least amo#nt
of amortization that co#ld be recorded in 2)13 is
a. M3)<))).
b$ E <?/???$
c. M &<44.
d. M $)<)).
&). *l#e .2y Com%anyHs 12F31F12 balance sheet re%orts assets of M"<))<))) and liabilities
of M3<)))<))). All of *l#e .2yHs assetsH boo2 ,al#es a%%ro(imate their fair ,al#e< e(ce%t
for land< +hich has a fair ,al#e that is M4)<))) greater than its boo2 ,al#e. 8n 12F31F12<
Eorace 3im% Cor%oration %aid M"<!)<))) to ac4#ire *l#e .2y. 3hat amo#nt of good+ill
sho#ld Eorace 3im% record as a res#lt of this %#rchaseD
a. M -)-
b. M1)<)))
"$ E2/<??/???
d. M3<1)<)))
&1. /otel Com%anyHs 12F31F12 balance sheet re%orts assets of M12<)))<))) and liabilities of
M<)))<))). All of /otelHs assetsH boo2 ,al#es a%%ro(imate their fair ,al#e< e(ce%t for land<
+hich has a fair ,al#e that is M$))<))) greater than its boo2 ,al#e. 8n 12F31F12< -gbert
Cor%oration %aid M12<2))<))) to ac4#ire /otel. 3hat amo#nt of good+ill sho#ld -gbert
record as a res#lt of this %#rchaseD
a. M -)-
b. M 2))<)))
"$ E6/6??/???
d. M<2))<)))
12 & 2?
Intangible Assets
&2. Floyd Com%any %#rchases Eaeger Com%any for M3<2))<))) cash on Jan#ary 1< 2)13.
The boo2 ,al#e of Eaeger Com%anyHs net assets< as reflected on its /ecember 31< 2)12
balance sheet is M2<4$)<))). An analysis by Floyd on /ecember 31< 2)12 indicates that
the fair ,al#e of EaegerHs tangible assets e(ceeded the boo2 ,al#e by M24)<)))< and the
fair ,al#e of identifiable intangible assets e(ceeded boo2 ,al#e by M1$)<))). Eo+ m#ch
good+ill sho#ld be recognized by Floyd Com%any +hen recording the %#rchase of Eaeger
Com%anyD
a. M -)-
b. M"2)<)))
c. M4$)<)))
$ E2??/???
&3. 5eneral 0rod#cts Com%any bo#ght .%ecial 0rod#cts /i,ision in 2)12 and a%%ro%riately
recorded M))<))) of good+ill related to the %#rchase. 8n /ecember 31< 2)13< the fair
,al#e of .%ecial 0rod#cts /i,ision is M4<)))<))) and it is carried on 5eneral 0rod#ctHs
boo2s for a total of M3<4))<)))< incl#ding the good+ill. An analysis of .%ecial 0rod#cts
/i,isionHs assets indicates that good+ill of M4))<))) e(ists on /ecember 31< 2)13. 3hat
good+ill im%airment sho#ld be recognized by 5eneral 0rod#cts in 2)13D
a$ E?$
b. M2))<))).
c. M)<))).
d. M3))<))).
&4. /#ring 2)12< *ond Com%any %#rchased the net assets of 'ay Cor%oration for
M2<)))<))). 8n the date of the transaction< 'ay had M!))<))) of liabilities. The fair ,al#e
of 'ayGs assets +hen ac4#ired +ere as follo+s?
C#rrent assets M 1<)$)<)))
>onc#rrent assets 2<2)<)))
M3<!))<)))
Eo+ sho#ld the M1<)))<))) difference bet+een the fair ,al#e of the net assets ac4#ired
AM3<)))<)))B and the cost AM2<)))<)))B be acco#nted for by *ondD
a. The M1<)))<))) difference sho#ld be credited to retained earnings.
b$ The E1/???/??? i!!eren"e shoul be re"o.niCe as a .ain$
c. The c#rrent assets sho#ld be recorded at M1<)$)<))) and the nonc#rrent assets
sho#ld be recorded at M1<2)<))).
d. A deferred credit of M1<)))<))) sho#ld be set #% and then amortized to income o,er a
%eriod not to e(ceed forty years.
12 & 21
&. The follo+ing information is a,ailable for *ar2ley Com%anyHs %atents?
Cost M2<$)<)))
Carrying amo#nt 1<2&)<)))
-(%ected f#t#re net cash flo+s 1<2))<)))
Fair ,al#e &"<)))
*ar2ley +o#ld record a loss on im%airment of
a. M &)<))).
b$ E 21:/???$
c. M1<2&)<))).
d. M1<3$)<))).
&!. Earrel Com%any ac4#ired a %atent on an oil e(traction techni4#e on Jan#ary 1< 2)12 for
M"<))<))). It +as e(%ected to ha,e a 1) year life and no resid#al ,al#e. Earrel #ses
straight-line amortization for %atents. 8n /ecember 31< 2)13< the e(%ected f#t#re cash
flo+s e(%ected from the %atent +ere e(%ected to be M&))<))) %er year for the ne(t eight
years. The %resent ,al#e of these cash flo+s< disco#nted at EarrelHs mar2et interest rate<
is M4<2))<))). At +hat amo#nt sho#ld the %atent be carried on the /ecember 31< 2)13
balance sheetD
a. M"<))<)))
b. M"<2))<)))
"$ E;/???/???
d. M4<2))<)))
&". 'alrom 'an#fact#ring Com%any ac4#ired a %atent on a man#fact#ring %rocess on
Jan#ary 1< 2)12 for M!<2)<))). It +as e(%ected to ha,e a 1) year life and no resid#al
,al#e. 'alrom #ses straight-line amortization for %atents. 8n /ecember 31< 2)13< the
e(%ected f#t#re cash flo+s e(%ected from the %atent +ere e(%ected to be M))<))) %er
year for the ne(t eight years. The %resent ,al#e of these cash flo+s< disco#nted at
'alromHs mar2et interest rate< is M3<)))<))). At +hat amo#nt sho#ld the %atent be carried
on the /ecember 31< 2)13 balance sheetD
a. M!<2)<)))
b. M<)))<)))
c. M4<)))<)))
$ E2/???/???
&$. T+ilight Cor%oration ac4#ired -nd-of-the-3orld 0rod#cts on Jan#ary 1< 2)12 for
M$<)))<)))< and recorded good+ill of M1<))<))) as a res#lt of that %#rchase. At
/ecember 31< 2)12< the -nd-of-the-3orld 0rod#cts /i,ision had a fair ,al#e of
M!<$))<))). The net identifiable assets of the /i,ision Ae(cl#ding good+illB had a fair ,al#e
of M<$))<))) at that time. 3hat amo#nt of loss on im%airment of good+ill sho#ld T+ilight
record in 2)12D
a. M -)-
b$ E:??/???
c. M"))<)))
d. M1<2))<)))
12 & 22
Intangible Assets
&&. Jen2s Cor%oration ac4#ired 1inebrin2 0rod#cts on Jan#ary 1< 2)12 for M!<)))<)))< and
recorded good+ill of M1<12<))) as a res#lt of that %#rchase. At /ecember 31< 2)12<
1inebrin2 0rod#cts had a fair ,al#e of M<1))<))). The net identifiable assets of the
1inebrin2 Ae(cl#ding good+illB had a fair ,al#e of M4<3)<))) at that time. 3hat amo#nt of
loss on im%airment of good+ill sho#ld Jen2s record in 2)12D
a. M -)-
b$ E2<:/???
c. M2<)))
d. M&))<)))
1)). In 2)12< -d+ards Cor%oration inc#rred research and de,elo%ment costs as follo+s?
'aterials and e4#i%ment M &)<)))
0ersonnel 13)<)))
Indirect costs 1)<)))
M3")<)))
These costs relate to a %rod#ct that +ill be mar2eted in 2)11. It is estimated that these
costs +ill be reco#%ed by /ecember 31< 2)1. The e4#i%ment has no alternati,e f#t#re
#se. 3hat is the amo#nt of research and de,elo%ment costs that sho#ld be e(%ensed in
2)12D
a. M).
b. M22)<))).
c. M2$)<))).
$ E2<?/???$
1)1. Eall Co. inc#rred research and de,elo%ment costs in 2)13 as follo+s?
'aterials #sed in research and de,elo%ment %roCects M 4)<)))
-4#i%ment ac4#ired that +ill ha,e alternate f#t#re #ses in f#t#re research
and de,elo%ment %roCects 3<)))<)))
/e%reciation for 2)13 on abo,e e4#i%ment ))<)))
0ersonnel costs of %ersons in,ol,ed in research and de,elo%ment %roCects ")<)))
Cons#lting fees %aid to o#tsiders for research and de,elo%ment %roCects 3))<)))
Indirect costs reasonably allocable to research and de,elo%ment %roCects 22<)))
M<22<)))
The amo#nt of research and de,elo%ment costs charged to EallGs 2)13 income statement
sho#ld be
a. M1<"))<))).
b. M2<)))<))).
"$ E2/22:/???$
d. M4<"))<))).
12 & 22
1)2. 1oazia Inc. inc#rred the follo+ing costs d#ring the year ended /ecember 31< 2)13?
1aboratory research aimed at disco,ery of ne+ 2no+ledge M23)<)))
Costs of testing %rototy%e and design modifications 4<)))
P#ality control d#ring commercial %rod#ction< incl#ding ro#tine testing
of %rod#cts 2")<)))
Constr#ction of research facilities ha,ing an estimated #sef#l life of
! years b#t no alternati,e f#t#re #se 3!)<)))
The total amo#nt to be classified and e(%ensed as research and de,elo%ment in 2)13 is
a. M!)<))).
b. M&)<))).
"$ E;2:/???$
d. M33<))).
1)3. 'a*elle Cor%oration inc#rred the follo+ing costs in 2)12?
Ac4#isition of R7/ e4#i%ment +ith a #sef#l life of
4 years in R7/ %roCects M!))<)))
.tart-#% costs inc#rred +hen o%ening a ne+ %lant 14)<)))
Ad,ertising e(%ense to introd#ce a ne+ %rod#ct "))<)))
-ngineering costs inc#rred to ad,ance a %rod#ct to f#ll
%rod#ction stage ))<)))
3hat amo#nt sho#ld 'a*elle record as research 7 de,elo%ment e(%ense in 2)12D
a$ E ;:?/???
b. M "4)<)))
c. M1<1))<)))
d. M1<24)<)))
1)4. 1ee%er Cor%oration inc#rred the follo+ing costs in 2)12?
Ac4#isition of R7/ e4#i%ment +ith a #sef#l life of
4 years in R7/ %roCects M$))<)))
Cost of ma2ing minor modifications to an e(isting %rod#ct 14)<)))
Ad,ertising e(%ense to introd#ce a ne+ %rod#ct "))<)))
-ngineering costs inc#rred to ad,ance a %rod#ct to f#ll
%rod#ction stage ")<)))
3hat amo#nt sho#ld 1ee%er record as research 7 de,elo%ment e(%ense in 2)12D
a$ E >:?/???
b. M &4)<)))
c. M1<4)<)))
d. M1<!4)<)))
12 & 26
Intangible Assets
1). 0latte,ille Cor%oration has the follo+ing acco#nt balances at 12F31F12?
Amortization e(%ense M 3)<)))
5ood+ill 42)<)))
0atent< net of M&)<))) amortization 21)<)))
3hat amo#nt sho#ld 0latte,ille re%ort for intangible assets on the 12F31F12 balance sheetD
a. M21)<)))
b. M3))<)))
"$ E;2?/???
d. M!!)<)))
91)!. .hangra-1a Com%any inc#rred M2<)))<))) AM))<))) in 2)11 and M1<))<))) in 2)12B to
de,elo% a com%#ter soft+are %rod#ct. M!))<))) of this amo#nt +as e(%ended before
technological feasibility +as established in early 2)12. The %rod#ct +ill earn f#t#re
re,en#es of M4<)))<))) o,er its -year life< as follo+s? 2)12 ; M1<)))<)))N 2)13 ;
M1<)))<)))N 2)14 ; M$))<)))N 2)1 ; M$))<)))N and 2)1! ; M4))<))). 3hat %ortion of
the M2<)))<))) com%#ter soft+are costs sho#ld be e(%ensed in 2)12D
a. M3)<)))
b. M4))<)))
"$ E6:?/???
d. M1<))<)))
91)". 1ogan Com%any inc#rred M4<)))<))) AM1<1))<))) in 2)11 and M2<&))<))) in 2)12B to
de,elo% a com%#ter soft+are %rod#ct. M1<2))<))) of this amo#nt +as e(%ended before
technological feasibility +as established in early 2)12. The %rod#ct +ill earn f#t#re
re,en#es of M$<)))<))) o,er its -year life< as follo+s? 2)12 ; M2<)))<)))N 2)13 ;
M2<)))<)))N 2)14 ; M1<!))<)))N 2)1 ; M1<!))<)))N and 2)1! ; M$))<))). 3hat %ortion
of the M4<)))<))) com%#ter soft+are costs sho#ld be e(%ensed in 2)12D
a. M"))<))).
b. M")<))).
"$ E=??/???$
d. M2<&))<))).
91)$. 5eller Inc. inc#rred M"))<))) of ca%italizable costs to de,elo% com%#ter soft+are d#ring
2)12. The soft+are +ill earn total re,en#es o,er its 4-year life as follo+s? 2)12 -
M4))<)))N 2)13 - M))<)))N 2)14 - M!))<)))N and 2)1 - M))<))). 3hat amo#nt of the
com%#ter soft+are costs sho#ld be e(%ensed in 2)12D
a. M"))<)))
b. M14)<)))
"$ E1<:/???
d. M24<)))
12 & 2:
91)&. Tri%iani Inc. inc#rred M$))<))) of ca%italizable costs to de,elo% com%#ter soft+are d#ring
2)12. The soft+are +ill earn total re,en#es o,er its -year life as follo+s? 2)12 -
M))<)))N 2)13 - M!))<)))N 2)14 - M!))<)))N 2)1 - M2))<)))N and 2)1! - M1))<))).
3hat amo#nt of the com%#ter soft+are costs sho#ld be e(%ensed in 2)12D
a$ E2??/???
b. M1!)<)))
c. M1$)<)))
d. M2!!<!!"
911). Tri%iani Inc. inc#rred M&))<))) of ca%italizable costs to de,elo% com%#ter soft+are d#ring
2)12. The soft+are +ill be #sed internally o,er its -year life. 3hat amo#nt of the
com%#ter soft+are costs sho#ld be e(%ensed in 2)12D
a. M&))<)))
b$ E1=?/???
c. M2)2<))
d. M3))<)))
*ulti#le Choi"e Ans(ers'Co-#utational
Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$
9"!. d $2. b $$. a &4. b 1)). d 91)!. c
9"". d $3. b $&. b &. b 1)1. c 91)". c
"$. c $4. b &). c &!. c 1)2. c 91)$. c
"&. d $. c &1. c &". d 1)3. a 91)&. a
$). c $!. b &2. d &$. b 1)4. a 911). b
$1. c $". b &3. a &&. b 1). c
*%LTIPLE CH+ICE'CPA Aa#te
111. 1o%ez Cor%. inc#rred M1<2!)<))) of research and de,elo%ment costs to de,elo% a %rod#ct
for +hich a %atent +as granted on Jan#ary 2< 2))$. 1egal fees and other costs associated
+ith registration of the %atent totaled M24)<))). 8n 'arch 31< 2)13< 1o%ez %aid M4)<)))
for legal fees in a s#ccessf#l defense of the %atent. The total amo#nt ca%italized for the
%atent thro#gh 'arch 31< 2)13 sho#ld be
a$ E;>?/???$
b. M1<))<))).
c. M1<"1)<))).
d. M1<&)<))).
12 & 2;
Intangible Assets
112. 8n J#ne 3)< 2)13< Cey< Inc. e(changed 4<))) shares of .eely Cor%. M3) %ar ,al#e
common stoc2 for a %atent o+ned by 5ore Co. The .eely stoc2 +as ac4#ired in 2)13 at a
cost of M11)<))). At the e(change date< .eely common stoc2 had a fair ,al#e of M4! %er
share< and the %atent had a net carrying ,al#e of M22)<))) on 5oreGs boo2s. Cey sho#ld
record the %atent at
a. M11)<))).
b. M12)<))).
"$ E1=6/???$
d. M22)<))).
113. 8n 'ay < 2)13< 'ac/o#gal Cor%. e(changed !<))) shares of its M2 %ar ,al#e treas#ry
common stoc2 for a %atent o+ned by 'asset Co. The treas#ry shares +ere ac4#ired in
2)12 for M13<))). At 'ay < 2)13< 'ac/o#galGs common stoc2 +as 4#oted at M34 %er
share< and the %atent had a carrying ,al#e of M1!<))) on 'assetGs boo2s. 'ac/o#gal
sho#ld record the %atent at
a. M13<))).
b. M1)<))).
c. M1!<))).
$ E2?6/???$
114. -ly Co. bo#ght a %atent from *aden Cor%. on Jan#ary 1< 2)13< for M4)<))). An
inde%endent cons#ltant retained by -ly estimated that the remaining #sef#l life at Jan#ary
1< 2)13 is 1 years. Its #namortized cost on *adenHs acco#nting records +as M22<)))N
the %atent had been amortized for years by *aden. Eo+ m#ch sho#ld be amortized for
the year ended /ecember 31< 2)13 by -ly Co.D
a. M).
b. M22<)).
"$ E2?/???$
d. M4<))).
11. Jan#ary 2< 2)1)< Ooll< Inc. %#rchased a %atent for a ne+ cons#mer %rod#ct for M4)<))).
At the time of %#rchase< the %atent +as ,alid for 1 yearsN ho+e,er< the %atentHs #sef#l life
+as estimated to be only 1) years d#e to the com%etiti,e nat#re of the %rod#ct. 8n
/ecember 31< 2)13< the %rod#ct +as %ermanently +ithdra+n from the mar2et #nder
go,ernmental order beca#se of a %otential health hazard in the %rod#ct. 3hat amo#nt
sho#ld Ooll charge against income d#ring 2)13< ass#ming amortization is recorded at the
end of each yearD
a. M 4<)))
b. M2")<)))
"$ E21:/???
d. M3!)<)))
12 & 2<
11!. 8n Jan#ary 1< 2))&< R#ssell Com%any %#rchased a co%yright for M2<)))<)))< ha,ing an
estimated #sef#l life of 1! years. In Jan#ary 2)13< R#ssell %aid M3))<))) for legal fees in
a s#ccessf#l defense of the co%yright. Co%yright amortization e(%ense for the year ended
/ecember 31< 2)13< sho#ld be
a. M).
b. M12<))).
c. M143<").
$ E1:?/???$
11". 3hich of the follo+ing legal fees sho#ld be ca%italizedD
1egal fees to 1egal fees to s#ccessf#lly
obtain a co%yright defend a trademar2
a. >o >o
b. >o Ies
"$ 7es 7es
d. Ies >o
11$. 3hich of the follo+ing costs of good+ill sho#ld be amortized o,er their estimated #sef#l
li,esD
Costs of good+ill from a Costs of de,elo%ing
b#siness combination good+ill internally
a$ No No
b. >o Ies
c. Ies Ies
d. Ies >o
11&. /#ring 2)13< 1eon Co. inc#rred the follo+ing costs?
Testing in search for %rocess alternati,es M 3)<)))
Costs of mar2eting research for ne+ %rod#ct 2)<)))
'odification of the form#lation of a %rocess !)<)))
Research and de,elo%ment ser,ices %erformed by *ec2 Cor%. for 1eon 42<)))
In 1eonGs 2)13 income statement< research and de,elo%ment e(%ense sho#ld be
a. M!)<))).
b. M&$<))).
"$ E1/22:/???$
d. M1<$<))).
12 & 2=
Intangible Assets
12). Riley Co. inc#rred the follo+ing costs d#ring 2)13?
.ignificant modification to the form#lation of a chemical %rod#ct M1!)<)))
Tro#ble-shooting in connection +ith brea2do+ns d#ring commercial
%rod#ction 1)<)))
Cost of e(%loration of ne+ form#las 2))<)))
.easonal or other %eriodic design changes to e(isting %rod#cts 1$<)))
1aboratory research aimed at disco,ery of ne+ technology 2"<)))
In its income statement for the year ended /ecember 31< 2)13< Riley sho#ld re%ort
research and de,elo%ment e(%ense of
a$ E;2:/???$
b. M"$<))).
c. M$2)<))).
d. M&")<))).
*ulti#le Choi"e Ans(ers'CPA Aa#te
Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$ Ite- Ans$
111. a 113. d 11. c 11". c 11&. c
112. c 114. c 11!. d 11$. a 12). a
)ERI5ATI+NS ' Co-#utational
No$ Ans(er )erivation
"!. d M4)<))) Q M1<))) @ M41<))).
"". d M3<))) Q M&)) @ M3<&)).
"$. c A2<)) R M&B Q M&)<))) @ M112<)).
"&. d M3))<))) R AM24)<))) F M32)<)))B @ M22<))).
$). c AM1)<))) S 1)B T 2 2F3 @ M4)<))).
$1. c AM2")<))) S 1)B T 2 2F3 @ M"2<))).
$2. b M2)<))) S 1) @ M2<))).
$3. b M1$)<))) ; UAM1$)<))) S 1)B T 1 1F3V @ M1!<))).
AM1!<))) Q M44<)))B S @ M4)<))).
$4. b M&))<))) ; UAM&))<))) S 1)B T 1 1F3V @ M"$)<))).
AM"$)<))) Q M22)<)))B S @ M2))<))).
$. c M3)<))) Q M44)<))) Q M&)<))) @ M!)<))).
$!. b AM&!)<))) S 1)B T @ M4$)<))).
$". b UAM!))<))) ; M!)<)))B Q M2")<)))V S 12 @ M!"<)).
12 & 2>
)ERI5ATI+NS ' Co-#utational 0"ont$1
$$. a M1<2))<))) S 1) @ M12)<))).
$&. b M2<1))<))) ; UAM2<1))<))) S !B T 2V @ M1<4))<))).
M1<4))<))) S 2) @ M")<))).
&). c AM"<))<))) Q M4)<)))B ; M3<)))<))) @ M4<&)<)))
M"<!)<))) ; M4<&)<))) @ M2<"))<))).
&1. c AM12<)))<))) Q M$))<)))B ; M<))) @ M"<$))<))).
M12<2))<))) ; M"<$))<))) @ M4<4))<))).
&2. d M2<4$)<))) Q M24)<))) Q M1$)<))) @ M2<&))<))).
M3<2))<))) ; M2<&))<))) @ M3))<))).
&3. a .ince M4<)))<))) W M3<4))<)))< M) im%airment.
&4. b M3<)))<))) ; M2<)))<))) @ M1<)))<))) gain.
&. b M1<2&)<))) ; M&"<))) @ M31<))).
&!. c M"<))<))) ; UAM"<))<))) S 1)B T 2V @ M!<)))<))).
&". d M!<2)<))) ; UAM!<2)<))) S 1)B T 2V @ M<)))<))).
.ince M<)))<))) W AM))<))) T $B< %atent is re%orted at M3<)))<))) A%resent
,al#e of cash flo+s.
&$. b M!<$))<))) ; M<$))<))) @ M1<)))<)))
M1<))<))) ; M1<)))<))) @ M))<))).
&&. b M<1))<))) ; M4<3)<))) @ M")<)))
M1<12<))) ; M ")<))) @ M3"<))).
1)). d -(%ense total of M3")<))).
1)1. c M<22<))) ; M3<)))<))) @ M2<22<))).
1)2. c M23)<))) Q M4<))) Q M3!)<))) @ M!3<))).
1)3. a AM!))<))) S 4B Q M))<))) @ M!)<))).
1)4. a AM$))<))) S 4B Q M")<))) @ M&)<))).
1). c M42)<))) QM21)<))) @ M!3)<))).
12 & 2?
Intangible Assets
91)!. c AM2<)))<))) ; M!))<)))B T AM1<)))<))) S M4<)))<)))B @ M3)<))).
M3)<))) Q AM!))<))) ; M))<)))B @ M4)<))).
91)". c AM4<)))<))) ; M1<2))<)))B T AM2<)))<))) S M$<)))<)))B @ M"))<))).
M"))<))) Q AM1<2))<))) ; M1<1))<)))B @ M$))<))).
91)$. c M"))<))) R X @ M1"<))) Agreater than M14)<)))B.
91)&. a M$))<))) R M))<))) F M2<)))<))) @ M2))<))) Agreater than M1!)<)))B.
911). b M&))<))) R 1F @ M1$)<))).
)ERI5ATI+NS ' CPA Aa#te
111. a M24)<))) Q M4)<))) @ M!&)<))).
112. c 4<))) T M4! @ M1$4<))).
113. d !<))) T M34 @ M2)4<))).
114. c M4)<))) S 1 @ M3)<))).
11. c M4)<))) ; UAM4)<))) S 1)B T 3V @ M31<))).
11!. d AM2<)))<))) ; UAM2<)))<))) S 1!B T 4V @ M1<))<)))
AM1<))<))) Q M3))<)))B S 12 @ M1)<))).
11". c Conce%t#al.
11$. a Conce%t#al.
11&. c M3)<))) Q M!)<))) Q M42<))) @ M1<33<))).
12). a M1!)<))) Q M2))<))) Q M2"<))) @ M!3<))).
12 & 21
E3ERCISES
EB$ 12&121
Intangible assets ha,e t+o main characteristics? A1B they lac2 %hysical e(istence< and A2B
they are not financial instr#ments.
Instru"tions
AaB -(%lain +hy intangibles are classified as assets if they ha,e no %hysical e(istence.
AbB -(%lain +hy intangibles are not considered financial instr#ments.
Solution 12&121
AaB Intangible assets deri,e their ,al#e from the rights and %ri,ileges they grant to the
com%any that o+ns them.
AbB Intangibles are not considered financial instr#ments beca#se they do not deri,e their
,al#e from the right AclaimB to recei,e cash or cash e4#i,alents in the f#t#re.
EB$ 12&122
Intangible assets may be internally generated or %#rchased from another %arty. In either
case< +hat costs sho#ld be incl#ded in the initial ,al#ation of the asset is an iss#e.
Instru"tions
AaB Identify the ty%ical costs incl#ded in the cash %#rchase of an intangible asset.
AbB /isc#ss ho+ to determine the cost of an intangible asset ac4#ired in a non-cash
transaction.
AcB /escribe ho+ to determine the cost of se,eral intangible assets ac4#ired in a Kbas2et
%#rchase.L 0ro,ide a n#merical e(am%le in,ol,ing intangibles being ac4#ired for a
total %rice of M&)<))).
Solution 12&122
AaB The ty%ical costs incl#ded in the %#rchase of an intangible asset are? %#rchase %rice<
legal fees< and other incidental e(%enses.
AbB In a non-cash ac4#isition of an intangible asset< the initial cost of the intangible is
either the fair ,al#e of the consideration gi,en or the fair ,al#e of the intangible
recei,ed< +hiche,er is more clearly e,ident.
AcB 3hen se,eral intangible assets are ac4#ired in a Kbas2et %#rchaseL< the cost of the
indi,id#al assets is based on their relati,e fair ,al#es. For e(am%le?
Asset F: Y Allocation
0atent A M !)<))) !) !)Y ( M&)<))) @ M 4<)))
0atent * 4)<))) 4) 4)Y ( M&)<))) @ 3!<)))
Totals M1))<))) 1)) M&)<)))
12 & 22
Intangible Assets
EB$ 12&122
3hy does the acco#nting %rofession ma2e a distinction bet+een internally created intangible
assets and %#rchased intangible assetsD
Solution 12&122
3hen intangible assets are created internally< it is often diffic#lt to determine the ,alidity of
any f#t#re ser,ice %otential. To %ermit deferral of these ty%es of costs +o#ld lead to a great
deal of s#bCecti,ity beca#se management co#ld arg#e that almost any e(%ense co#ld be
ca%italized on the basis that it +ill increase f#t#re benefits. The cost of %#rchased intangible
assets< ho+e,er< is ca%italized beca#se its cost can be obCecti,ely ,erified and reflects its fair
,al#e at the date of ac4#isition.
EB$ 12&126Z.hort essay 4#estions.
1. 3hat are intangible assetsD
2. Eo+ are limited-life intangibles acco#nted for s#bse4#ent to ac4#isitionD
Solution 12&126
1. Intangible assets are assets that deri,e their ,al#e from the rights and %ri,ileges granted to
the com%any #sing them. They %ro,ide ser,ices o,er a %eriod of years and are normally
classified as long-term assets. -(am%les are %atents< co%yrights< franchises< good+ill<
trademar2s< and trade names.
2. 1imited-life intangibles are amortized by systematic charges to e(%ense o,er their #sef#l life.
In addition< they are re,ie+ed for im%airment each year. Im%airment occ#rs +hen the f#t#re
net cash flo+s are less than the carrying amo#nt of the intangible asset. The intangible asset
is red#ced for the amo#nt by +hich its carrying ,al#e e(ceeds its fair ,al#e at year end.
EB$ 12&12:
If intangible assets are ac4#ired for stoc2< ho+ is the cost of the intangible determinedD
Solution 12&12:
If intangible assets are ac4#ired for stoc2< the cost of the intangible is the fair ,al#e of the
consideration gi,en or the fair ,al#e of the consideration recei,ed< +hiche,er is more clearly
e,ident.
EB$ 12&12;
Redstone Com%any s%ent M1&)<))) de,elo%ing a ne+ %rocess< M4<))) in legal fees to
obtain a %atent< and M&1<))) to mar2et the %rocess that +as %atented. Eo+ sho#ld these
costs be acco#nted for in the year they are inc#rredD
Solution 12&12;
The M1&)<))) sho#ld be e(%ensed +hen inc#rred as research and de,elo%ment e(%ense.
The M&1<))) is e(%ensed as selling and %romotion e(%ense +hen inc#rred. The M4<))) of
costs to legally obtain the %atent sho#ld be ca%italized and amortized o,er the #sef#l or legal
life of the %atent< +hiche,er is shorter.
12 & 22
EB$ 12&12<ZIntangible assets 4#estions.
Indicate the best ans+er by circling the %ro%er letter.
1. Co%yrights sho#ld be amortized o,er
a. their legal life.
b. the life of the creator %l#s fifty years.
c. t+enty years.
$ their use!ul li!e or le.al li!e/ (hi"hever is shorter$
2. A %atent sho#ld be amortized o,er
a. t+enty years.
b. its #sef#l life.
c. its #sef#l life or t+enty years< +hiche,er is longer.
$ its use!ul li!e or t(entA Aears/ (hi"hever is shorter$
3. The maCor %roblem of acco#nting for intangibles is determining
a. fair ,al#e.
b. se%arability.
c. sal,age ,al#e.
$ use!ul li!e$
4. 1imited-life intangibles are re%orted at their
a. re%lacement cost.
b$ "arrAin. a-ount unless i-#aire$
c. ac4#isition cost.
d. li4#idation ,al#e.
. >egati,e good+ill arises +hen the [[[[[[[[[[[[[[ of the net assets ac4#ired is higher than
the %#rchase %rice of the assets.
a. #sef#l life
b. carrying ,al#e
"$ !air value
d. e(cess earnings
Solution 12&12<
1. d 2. d 3. d 4. b . c
EB$ 12&12=
Intangible assets ha,e either a limited #sef#l life or an indefinite #sef#l life. Eo+ sho#ld these
t+o different ty%es of intangibles be amortizedD
Solution 12&12=
1imited-life intangible assets sho#ld be amortized by systematic charges to e(%ense o,er the
shorter of their #sef#l life or legal life. An intangible asset +ith an indefinite life is not
amortized.
12 & 26
Intangible Assets
EB$ 12&12>
3hat are factors to be considered in estimating the #sef#l life of an intangible assetD
Solution 12&12>
Factors to be considered in determining #sef#l life are?
a. The e(%ected #se of the asset by the entity.
b. The e(%ected #sef#l life of another asset or a gro#% of assets to +hich the #sef#l life of
the intangible asset may relate.
c. Any legal< reg#latory< or contract#al %ro,isions that may limit #sef#l life.
d. Any legal< reg#latory or contract#al %ro,isions that enable rene+al or e(tension of the
assetHs legal or contract#al life +itho#t s#bstantial cost.
e. The effects of obsolescence< demand< com%etition< and other economic factors.
f. The le,el of maintenance e(%endit#re re4#ired to obtain the e(%ected f#t#re cash flo+s
from the asset.
EB$ 12&12?
*ar2ley Cor%. obtained a trade name in Jan#ary 2)11< inc#rring legal costs of M3)<))). The
com%any amortizes the trade name o,er $ years. *ar2ley s#ccessf#lly defended its trade
name in Jan#ary 2)12< inc#rring M&<$)) in legal fees. At the beginning of 2)13< based on ne+
mar2eting research< *ar2ley determines that the fair ,al#e of the trade name is M24<))).
-stimated total f#t#re cash flo+s from the trade name are M2!<))) on Jan#ary 4< 2)13.
Instru"tions
0re%are the necessary Co#rnal entries for the years ending /ecember 31< 2)11< 2)12< and
2)13. .ho+ all com%#tations.
12 & 2:
Solution 12&12?
2)11
/ec. 31 Amortization -(%ense 3<")
Trade >ames 3<")
AM3)<))) S $ yearsB
2)12
/ec. 31 Amortization -(%ense !<&))
Trade >ames !<&))
UAM3)<))) - M3<") Q M&<$))B S " yearsV
2)13
/ec. 31 1oss on Im%airment 3<4)
Trade >ames 3<4)
Carrying ,al#e @ M3)<))) - M3<") Q M&<$)) - M<1) @ M3)<&))
Total f#t#re cash flo+s @ 2!<)))
Therefore< an im%airment loss has occ#rred
Carrying ,al#e @ M3)<&))
Fair ,al#e @ A24<)))B
1oss on im%airment @ M !<&))
2)13
/ec. 31 Amortization -(%ense 4<)))
Trade >ames 4<)))
AM24<))) S ! yearsB
EB$ 12&121ZIntangible assets theory.
It has been arg#ed on the gro#nds of conser,atism that all intangible assets sho#ld be +ritten off
immediately after ac4#isition. /isc#ss the acco#nting arg#ments against this treatment.
Solution 12&121
Intangible assets %ro,ide re,en#es o,er a %eriod of years. 1imited-life intangibles are therefore
ca%italized and amortized by systematic charges to e(%ense o,er their #sef#l life. This treatment
is in accordance +ith the e(%ense recognition %rinci%leZded#cting e(%enses in the same
%eriodAsB that re,en#es are re%orted.
EB$ 12&122
1isted belo+ is a selection of acco#nts fo#nd in the general ledger of 'arshall Cor%oration
as of /ecember 31< 2)13?
Acco#nts recei,able Research 7 de,elo%ment costs
5ood+ill Internet domain name
8rganization costs Initial o%erating loss
0re%aid ins#rance >on-com%etition agreement
Radio broadcasting rights C#stomer list
0remi#m on bonds %ayable :ideo co%yrights
Trade name >otes recei,able
12 & 2;
Intangible Assets
Instru"tions
1ist those acco#nts that sho#ld be classified as intangible assets.
Solution 12&122
5ood+ill >on-com%etition agreement
Radio broadcasting rights C#stomer list
Trade name :ideo co%yrights
Internet domain name
EB$ 12&122
/efine the follo+ing terms.
AaB 5ood+ill AbB >egati,e good+ill
Solution 12&122
AaB :arying a%%roaches are #sed to define good+ill. They are?
5ood+ill sho#ld be meas#red initially as the e(cess of the fair ,al#e of the
ac4#isition cost o,er the fair ,al#e of the net assets ac4#ired.
5ood+ill is sometimes defined as one or more #nidentified intangible assets and
identifiable intangible assets that are not reliably meas#rable. -(am%les of elements
of good+ill incl#de ne+ channels of distrib#tion< synergies of combining sales
forces< and a s#%erior management team.
5ood+ill may also be defined as the intrinsic ,al#e that a b#siness has ac4#ired
beyond the mere ,al#e of its net assets +hether d#e to the %ersonality of those
cond#cting it< the nat#re of its location< its re%#tation< or any other circ#mstance
incidental to the b#siness and tending to ma2e it %ermanent. Another definition is
the ca%italized ,al#e of the e(cess of estimated f#t#re %rofits of a b#siness o,er the
rate of ret#rn on ca%ital considered normal in the ind#stry.
AbB >egati,e good+ill de,elo%s +hen the fair ,al#e of the assets %#rchased is higher than
the cost. This sit#ation may de,elo% from a mar2et im%erfection. In this case< the seller
+o#ld ha,e been better off to sell the assets indi,id#ally than in total. Eo+e,er<
sit#ations do occ#r Ae.g.< a forced li4#idation or distressed sale d#e to the death of the
com%any fo#nderB< in +hich the %#rchase %rice is less than the ,al#e of the identifiable
net assets.
EB$ 12&126ZCarrying ,al#e of %atent.
.isco Co. %#rchased a %atent from Thornton Co. for M4)<))) on J#ly 1< 2)1). -(%endit#res of
M2)4<))) for s#ccessf#l litigation in defense of the %atent +ere %aid on J#ly 1< 2)13. .isco
estimates that the #sef#l life of the %atent +ill be 2) years from the date of ac4#isition.
Instru"tions
0re%are a com%#tation of the carrying ,al#e of the %atent at /ecember 31< 2)13.
12 & 2<
Solution 12&126
Cost of %atent M4)<)))
Amortization "F1F1) to "F1F13 UAM4)<))) S 2)B T 3V A$1<)))B
Carrying ,al#e at "F1F13 4&<)))
Cost of s#ccessf#l defense 2)4<)))
Carrying ,al#e !!3<)))
Amortization "F1F13 to 12F31F13 UM!!3<))) T 1FA2) ; 3B T 1F2V A1&<))B
Carrying ,al#e at 12F31F13 M!43<))
EB$ 12&12:ZAcco#nting for %atent.
In early Jan#ary 2)11< 1erner Cor%oration a%%lied for a %atent< inc#rring legal costs of M4)<))). In
Jan#ary 2)12< 1erner inc#rred M&<))) of legal fees in a s#ccessf#l defense of its %atent.
Instru"tions
AaB Com%#te 2)11 amortization< 12F31F11 carrying ,al#e< 2)12 amortization< and 12F31F12
carrying ,al#e if the com%any amortizes the %atent o,er 1) years.
AbB Com%#te the 2)13 amortization and the 12F31F13 carrying ,al#e< ass#ming that at the
beginning of 2)13< based on ne+ mar2et research< 1erner determines that the fair ,al#e of
the %atent is M34<))). -stimated f#t#re cash flo+s from the %atent are M3<))) on Jan#ary 3<
2)13.
Solution 12&12:
AaB 2)11 amortization? M4)<))) S 1) yrs. @ M4<)))
12F31F11 carrying ,al#e? M4)<))) ; M4<))) @ M3!<)))
2)12 amortization? AM3!<))) Q M&<)))B S & yrs. @ M<)))
12F31F12 carrying ,al#e? AM3!<))) Q M&<)))B ; M<))) @ M4)<)))
AbB .ince the e(%ected f#t#re cash flo+s AM3<)))B are less than the carrying ,al#e AM4)<)))B<
an im%airment loss m#st be com%#ted.
1oss on im%airment? M4)<))) carrying ,al#e ; M34<))) fair ,al#e @ M!<)))
2)13 amortization? M34<))) S $ yrs. @ M4<2)
12F31F13 carrying ,al#e? M34<))) ; M4<2) @ M2&<")
EB$ 12&12;
=nder +hat circ#mstances is it a%%ro%riate to record good+ill in the acco#ntsD Eo+ sho#ld
good+ill< %ro%erly recorded on the boo2s< be +ritten off in accordance +ith generally
acce%ted acco#nting %rinci%lesD
Solution 12&12;
5ood+ill is recorded only +hen it is ac4#ired thro#gh a b#siness combination. 5ood+ill
ac4#ired in a b#siness combination is considered to ha,e an indefinite life and therefore
sho#ld not be amortized< b#t sho#ld be tested for im%airment on at least an ann#al basis.
12 & 2=
Intangible Assets
EB$ 12&12<
FredHs Com%any is considering the +rite-off of a limited life intangible asset beca#se of its
lac2 of %rofitability. -(%lain to the management of FredHs ho+ to determine +hether a
+riteoff is %ermitted.
Solution 12&12<
Acco#nting standards re4#ire that if e,ents or changes in circ#mstances indicate that the
carrying amo#nt of s#ch assets may not be reco,erable< then the carrying amo#nt of the
asset sho#ld be assessed. The assessment or re,ie+ ta2es the form of a reco,erability test
that com%ares the s#m of the e(%ected f#t#re cash flo+s from the asset A#ndisco#ntedB to
the carrying amo#nt. If the cash flo+s are less than the carrying amo#nt< the asset has been
im%aired. The im%airment loss is meas#red as the amo#nt by +hich the carrying amo#nt
e(ceeds the fair ,al#e of the asset. The fair ,al#e of assets is meas#red by their mar2et
,al#e if an acti,e mar2et for them e(ists. If no mar2et %rice is a,ailable< the %resent ,al#e of
the e(%ected f#t#re net cash flo+s from the asset may be #sed.
EB$ 12&12=
1eon Cor%. %#rchased .%in2s Co. 4 years ago and at that time recorded good+ill of
M3!)<))). The .in2s /i,isionHs net assets< incl#ding good+ill< ha,e a carrying amo#nt of
M$)<))). The fair ,al#e of the di,ision is estimated to be M&))<))).
Instru"tions
AaB -(%lain +hether or not 1eon Cor%. m#st %re%are an entry to record im%airment of the
good+ill. Incl#de the entry< if necessary.
AbB Re%eat instr#ction AaB ass#ming that the fair ,al#e of the di,ision is estimated to be
M$))<))) and the im%lied good+ill is M2")<))).
Solution 12&12=
AaB The fair ,al#e of the di,ision AM&))<)))B e(ceeds the carrying amo#nt of its assets
AM$)<)))B. Therefore< good+ill is not im%aired and no entry is necessary.
AbB The fair ,al#e of the di,ision AM$))<)))B is less than the carrying amo#nt of its assets
AM$)<)))B. Therefore< good+ill is im%aired. The amo#nt of the im%airment loss is
M&)<)))< the difference bet+een the recorded good+ill AM3!)<)))B and the im%lied
good+ill AM2")<)))B.
1oss on Im%airment &)<)))
5ood+ill &)<)))
EB$ 12&12>ZIm%airment of co%yrights.
0resented belo+ is information related to co%yrights o+ned by 3amser Cor%oration at /ecember
31< 2)12.
Cost M3<!))<)))
Carrying amo#nt 3<1))<)))
-(%ected f#t#re net cash flo+s 2<$))<)))
Fair ,al#e 1<&))<)))
Ass#me 3amser +ill contin#e to #se this asset in the f#t#re. As of /ecember 31< 2)12< the
co%yrights ha,e a remaining #sef#l life of years.
12 & 2>
Instru"tions
AaB 0re%are the Co#rnal entry Aif anyB to record the im%airment of the asset at /ecember 31<
2)12.
AbB 0re%are the Co#rnal entry to record amortization e(%ense for 2)13.
AcB The fair ,al#e of the co%yright at /ecember 31< 2)13 is M2<)))<))). 0re%are the Co#rnal
entry Aif anyB necessary to record this increase in fair ,al#e.
Solution 12&12>
AaB /ecember 31< 2)12
1oss on Im%airment.................................................................... 1<2))<)))
Co%yrights......................................................................... 1<2))<)))
Carrying amo#nt M3<1))<)))
Fair ,al#e 1<&))<)))
1oss on im%airment M 1<2))<)))
AbB /ecember 31< 2)13
Amortization -(%ense................................................................. 3$)<)))
Co%yrights......................................................................... 3$)<)))
>e+ carrying amo#nt M1<&))<)))
=sef#l life S years
Amortization M 3$)<)))
AcB >o entry necessary. Restoration of any im%airment loss is not %ermitted for assets held for
f#t#re #se.
EB$ 12&16?
Research and de,elo%ment acti,ities may incl#de AaB %ersonnel costs< AbB materials and
e4#i%ment costs< and AcB indirect costs. 3hat is the recommended acco#nting treatment for
these three ty%es of R7/ costsD
Solution 12&16?
AaB 0ersonnel AlaborB ty%e costs inc#rred in R 7 / acti,ities sho#ld be e(%ensed as
inc#rred.
AbB 'aterials and e4#i%ment costs sho#ld be e(%ensed immediately #nless the items ha,e
alternati,e f#t#re #ses. If the items ha,e alternati,e f#t#re #ses< the materials sho#ld be
recorded as in,entories and allocated as cons#med and the e4#i%ment sho#ld be
ca%italized and de%reciated as #sed.
AcB Indirect costs of R 7 / acti,ities sho#ld be reasonably allocated to R 7 / Ae(ce%t for
general and administrati,e costs< +hich m#st be clearly related to be incl#dedB and
e(%ensed.
12 & 6?
Intangible Assets
EB$ 12&161
Recently< a gro#% of #ni,ersity st#dents decided to incor%orate for the %#r%oses of selling a
%rocess to recycle the +aste %rod#ct from man#fact#ring cheese. .ome of the initial costs
in,ol,ed +ere legal fees and office e(%enses inc#rred in starting the b#siness< state
incor%oration fees< and stam% ta(es. 8ne st#dent +ishes to charge these costs against
re,en#e in the c#rrent %eriod. Another +ishes to defer these costs and amortize them in the
f#t#re. 3hich st#dent is correct and +hyD
Solution 12&161
These costs are referred to as start-#% costs< or more s%ecifically organizational costs in this
case. Acco#nting for start #% costs is straightfor+ardZe(%ense these costs as inc#rred.
The %rofession recognizes that these costs are inc#rred +ith the e(%ectation that f#t#re
re,en#es +ill occ#r or increased efficiencies +ill res#lt. Eo+e,er< to determine the amo#nt
and timing of f#t#re benefits is so diffic#lt that a conser,ati,e a%%roachZe(%ensing these
costs as inc#rredZis re4#ired.
EB$ 12&162ZAc4#isition of tangible and intangible assets.
:as4#ez 'an#fact#ring Com%any decided to e(%and f#rther by %#rchasing 3asserman
Com%any. The balance sheet of 3asserman Com%any as of /ecember 31< 2)13 +as as follo+s?
3asserman Com%any
*alance .heet
/ecember 31< 2)13
Assets 1iabilities and -4#ities
Cash M 21)<))) Acco#nts %ayable M 3"<)))
Recei,ables )<))) Common stoc2 $))<)))
In,entory 2"<))) Retained earnings $$<)))
0lant assets AnetB 1<)2<)))
Total assets M2<)!)<))) Total liabilities and e4#ities M2<)!)<)))
An a%%raisal< agreed to by the %arties< indicated that the fair ,al#e of the in,entory +as M3)<)))
and that the fair ,al#e of the %lant assets +as M1<32<))). The fair ,al#e of the recei,ables is
e4#al to the amo#nt re%orted on the balance sheet. The agreed %#rchase %rice +as M2<2"<)))<
and this amo#nt +as %aid in cash to the %re,io#s o+ners of 3asserman Com%any.
Instru"tions
/etermine the amo#nt of good+ill Aif anyB im%lied in the %#rchase %rice of M2<2"<))). .ho+
calc#lations.
Solution 12&162
0#rchase %rice M2<2"<)))
1ess tangible net assets ac4#ired?
*oo2 ,al#e AM2<)!)<))) ; M3"<)))B M1<!$<)))
A%%raisal incrementZin,entory "<)))
A%%raisal incrementZ%lant assets 3))<)))
Total fair ,al#e of tangible net assets ac4#ired 2<)!)<)))
5ood+ill M 21<)))
12 & 61
@EB$ 12&162
'acro.oft Inc. has ca%italized M&))<))) of soft+are costs. .ales from this %rod#ct +ere
M3!)<))) in the first year. 'acro.oft estimates additional re,en#es of M$4)<))) o,er the
%rod#ctHs economic life of years.
Instru"tions
0re%are the Co#rnal entry to record soft+are cost amortization for the first year. .ho+ all
com%#tations.
Solution 12&162
Com%#tations? 0ercent of re,en#e a%%roach
M&))<))) ( UM3!)<)))FAM3!)<))) Q M$4)<)))BV @ M2")<)))
.traight-line a%%roach
M&))<))) ( 1F @ M1$)<)))
Jo#rnal -ntry?
Amortization -(%ense 2")<)))
Com%#ter .oft+are Costs 2")<)))
PR+BLE*S
Pr$ 12&166ZIntangible assets.
The follo+ing transactions in,ol,ing intangible assets of 'inton Cor%oration occ#rred on or near
/ecember 31< 2)12. Com%lete the chart belo+ by +riting the Co#rnal entryAiesB needed at that
date to record the transaction and at /ecember 31< 2)13 to record any res#ltant amortization. If
no entry is re4#ired at a %artic#lar date< +rite 6none needed.6
12 & 62
Intangible Assets
Pr$ 12&166 ACont.B
8n /ate 8n
of Transaction /ecember 31< 2)13
1. 'inton %aid 5rand Com%any M))<))) for the
e(cl#si,e right to mar2et a %artic#lar %rod#ct<
#sing the 5rand name and logo in %romotional
material. The franchise r#ns for as long as
'inton is in b#siness.
2. 'inton s%ent M!))<))) de,elo%ing a ne+ man#-
fact#ring %rocess. It has a%%lied for a %atent< and
it belie,es that its a%%lication +ill be s#ccessf#l.
3. In Jan#ary< 2)13< 'intonGs a%%lication for a
%atent A\2 abo,eB +as granted. 1egal and
registration costs inc#rred +ere M1)<))). The
%atent r#ns for 2) years. The man#fact#ring
%rocess +ill be #sef#l to 'inton for 1) years.
4. 'inton inc#rred M12)<))) in s#ccessf#lly defend-
ing one of its %atents in an infringement s#it. The
%atent e(%ires d#ring /ecember< 2)1!.
. 'inton inc#rred M4$)<))) in an #ns#ccessf#l
%atent defense. As a res#lt of the ad,erse
,erdict< the %atent< +ith a remaining #namortized
cost of M22<)))< is deemed +orthless.
!. 'inton %aid .need 1aboratories M1)4<))) for
research and de,elo%ment +or2 %erformed by
.need #nder contract for 'inton. The benefits
are e(%ected to last si( years.
Solution 12&166
8n /ate of Transaction 8n /ecember 31< 2)13
1. Franchises........... ))<))) 1. K>one needed.L
Cash.............. ))<)))
2. Research and 2. 6>one needed.6
/e,el. -(%ense.... !))<)))
Cash.............. !))<)))
3. 0atents................. 1)<))) 3. Amortization
Cash.............. 1)<))) -(%ense..................... 1<)))
0atents................. 1<)))
4. 0atents................. 12)<))) 4. Amortization
Cash.............. 12)<))) -(%ense..................... 3)<)))
0atents................. 3)<)))
12 & 62
Solution 12&166 ACont.B
. 1egal Fees -(%.... 4$)<))) . K>one needed.L
Cash.............. 4$)<)))
0atent -(%ense. . . 22<)))
0atents........... 22<)))
!. Research and !. 6>one needed.6
/e,el. -(%ense.... 1)4<)))
Cash.............. 1)4<)))
Pr$ 12&16:Z5ood+ill< im%airment.
8n 'ay 31< 2)13< Armstrong Com%any %aid M3<3))<))) to ac4#ire all of the common stoc2 of
Eall Cor%oration< +hich became a di,ision of Armstrong. Eall re%orted the follo+ing balance sheet
at the time of the ac4#isition?
C#rrent assets M &))<))) C#rrent liabilities M !))<)))
>onc#rrent assets 2<"))<))) 1ong-term liabilities ))<)))
.toc2holdersH e4#ity 2<))<)))
Total liabilities and
Total assets M3<!))<))) stoc2holdersH e4#ity M3<!))<)))

It +as determined at the date of the %#rchase that the fair ,al#e of the identifiable net assets of
Eall +as M2<$))<))). At /ecember 31< 2)13< Eall re%orts the follo+ing balance sheet information?
C#rrent assets M $))<)))
>onc#rrent assets Aincl#ding good+ill recognized in %#rchaseB 2<4))<)))
C#rrent liabilities A"))<)))B
1ong-term liabilities A))<)))B
>et assets M2<)))<)))
It is determined that the fair ,al#e of the Eall di,ision is M2<1))<))). The recorded amo#nt for
EallHs net assets Ae(cl#ding good+illB is the same as fair ,al#e< e(ce%t for %ro%erty< %lant< and
e4#i%ment< +hich has a fair ,al#e of M2))<))) abo,e the carrying ,al#e.
Instru"tions
AaB Com%#te the amo#nt of good+ill recognized< if any< on 'ay 31< 2)13.
AbB /etermine the im%airment loss< if any< to be recorded on /ecember 31< 2)13.
AcB Ass#me that the fair ,al#e of the Eall di,ision is M1<&)<))) instead of M2<1))<))). 0re%are
the Co#rnal entry to record the im%airment loss< if any< on /ecember 31< 2)13.
Solution 12&16:
AaB 5ood+ill @ Fair ,al#e of the di,ision less the fair ,al#e of the identifiable assets.
M3<3))<))) ; M2<$))<))) @ M))<))).
AbB >o im%airment loss is recorded< beca#se the fair ,al#e of Eall AM2<1))<)))B is greater than
the carrying ,al#e AM2<)))<)))B of the ne+ assets.
12 & 66
Intangible Assets
Solution 12&16: ACont.B
AcB Com%#tation of im%airment loss?
Im%lied fair ,al#e of good+ill @ Fair ,al#e of di,ision less the carrying ,al#e of the di,ision
AadC#sted for fair ,al#e changesB< net of good+ill?
Fair ,al#e of Eall di,ision M1<&)<)))
Carrying ,al#e of di,ision M2<)))<)))
Increase in fair ,al#e of 007- 2))<)))
1ess good+ill A))<)))B
A1<"))<)))B
Im%lied ,al#e of good+ill 2)<)))
Carrying amo#nt of good+ill A))<)))B
1oss on im%airment M A2)<)))B
1oss on Im%airment.................................................................. 2)<)))
5ood+ill......................................................................... 2)<)))
12 & 6:
IFRS 8%ESTI+NS
TrueFFalse 8uestions
1. As in =... 5AA0< #nder IFR. the costs associated +ith research and de,elo%ment are
segregated into t+o com%onents.
2. Costs in the research %hase are e(%ensed #nder =... 5AA0< b#t ca%italized #nder IFR..
3. Costs in the research %hase are al+ays e(%ensed #nder both IFR. and =... 5AA0.
4. IFR. differs from =... 5AA0 in the de,elo%ment %hase in that costs are ca%italized once
technological feasibility is achie,ed.
. The increased acce%tance of IFR. has ca#sed costs associated +ith internally generated
intangible assets to be ca%italized #nder =... 5AA0.
!. IFR. %ermits some ca%italization of internally generated intangible assets< if it is %robable
there +ill be a f#t#re benefit and the amo#nt can be readily meas#red.
". 3hile IFR. re4#ires an im%airment test at each re%orting date for long-li,ed assets< it
re4#ires no s#ch test for intangibles once a legal or #sef#l life has been determined.
$. IFR. allo+s re,ersal of im%airment losses +hen there has been a change in economic
conditions or in the e(%ected #se of the asset. =nder =.. 5AA0< im%airment losses cannot be
re,ersed for assets to be held and #sed.
&. IFR. and =... 5AA0 are similar in the acco#nting for im%airments of assets held for dis%osal.
1). =nder =... 5AA0< im%airment loss is meas#red as the e(cess of the carrying amo#nt o,er
the assets disco#nted cash flo+.
Ans(ers to TrueFFalseG
1. Tr#e
2. False
3. Tr#e
4. Tr#e
. False
!. Tr#e
". False
$. Tr#e
&. Tr#e
1). False
*ulti#le&Choi"e 8uestions
1. As in =... 5AA0< #nder IFR. the costs associated +ith research and de,elo%ment are
segregated into
a. t+o com%onents< the research %hase and the %rod#ction %hase.
b. t+o com%onents< the research %hase and the de,elo%ment %hase.
c. three com%onents< the %lanning %hase< the research %hase and the %rod#ction %hase.
d. three com%onents< the analysis %hase< the de,elo%ment %hase and the %rod#ction %hase.
12 & 6;
Intangible Assets
2. In acco#nting for internally generated intangible assets< =... 5AA0 re4#ires that
a. all costs< no matter ho+ immaterial< be ca%italized.
b. only material costs be ca%italized.
c. %lanned costs be ca%italized< +hile costs in e(cess of %lan be e(%ensed.
d. all costs be e(%ensed.
3. The follo+ing costs are inc#rred d#ring the research and de,elo%ment %hases of a laser bone
scanner
1aboratory research aimed at disco,ery of ne+ 2no+ledge M!))<)))
.earch for a%%lication of ne+ research findings 4))<)))
.alaries of research staff designing ne+ laser bone scanner 1<2))<)))
'aterial< labor and o,erhead costs of %rototy%e laser scanner $)<)))
Costs of testing %rototy%e and design modifications 4)<)))
-ngineering costs inc#rred to ad,ance the laser scanner to f#ll %rod#ction stage
Atechnological feasibility reachedB
"))<)))
Identify +hich of these are research %hase items and +ill be immediately e(%ensed #nder
=... 5AA0 and IFR..
=... 5AA0 IFR.
a. M1<)))<))) M1<)))<)))
b. 2<2))<))) 1<2))<)))
c. 4<2))<))) 4<2))<)))
d. 4<2))<))) 3<))<)))
4. The follo+ing costs are inc#rred d#ring the research and de,elo%ment %hases of a laser bone
scanner
1aboratory research aimed at disco,ery of ne+ 2no+ledge M!))<)))
.earch for a%%lication of ne+ research findings 4))<)))
.alaries of research staff designing ne+ laser bone scanner 1<2))<)))
'aterial< labor and o,erhead costs of %rototy%e laser scanner $)<)))
Costs of testing %rototy%e and design modifications 4)<)))
-ngineering costs inc#rred to ad,ance the laser scanner to f#ll
%rod#ction stage Atechnological feasibility reachedB
"))<)))
Identify +hich of these are de,elo%ment %hase items and +ill be immediately e(%ensed #nder
=... 5AA0 and IFR..
=... 5AA0 IFR.
a. M1<)))<))) M1<)))<)))
b. 2<2))<))) 1<2))<)))
c. 2<2))<))) 3<2))<)))
d. 3<2))<))) 3<2))<)))
. The %rimary IFR. related to intangible assets and im%airments is fo#nd in
a. IA. 3$ and IA. 1).
b. IA. 1! and IA. 3!.
c. IA. 1 and IA. 34.
d. IA. 3$ and IA. 3!.
12 & 6<
!. IFR. allo+s re,ersal of im%airment losses +hen
a. the re,ersal is greater than the amo#nt of the original im%airment.
b. the re,ersal falls in a s#bse4#ent fiscal year of the com%anyGs o%erations.
c. there has been a change in economic conditions or in the e(%ected #se of the asset.
d. re,ersal of im%airment losses is ne,er allo+ed.
". =nder =... 5AA0< im%airment losses
a. can be re,ersed b#t only if the re,ersal is greater than the amo#nt of the original
im%airment.
b. can be re,ersed b#t only if the re,ersal falls in a s#bse4#ent fiscal year of the com%anyGs
o%erations.
c. cannot be re,ersed for assets to be held and #sed.
d. none of the abo,e.
$. IFR. and =... 5AA0
a. are diametrically o%%osed in their acco#nting for im%airments of assets held for dis%osal.
b. are similar in the acco#nting for im%airments of assets held for dis%osal.
c. are mo,ing to+ard common gro#nd in their acco#nting for im%airments of assets held for
dis%osal.
d. are mo,ing f#rther a%art in their acco#nting for im%airments of assets held for dis%osal.
&. =nder IFR.< costs in the de,elo%ment %hase are
a. ne,er ca%italized< b#t e(%ensed as they are #nder =... 5AA0.
b. ca%italized if they e(ceed de,elo%ment %hase costs inc#rred for %re,io#sly s#ccessf#l
,ent#res.
c. ca%italized once technological feasibility is achie,ed.
d. ca%italized on an interim basis< b#t then e(%ensed %rior to the end of the com%anyGs fiscal
year.
Ans(ers to *ulti#le Choi"eG
1. b
2. d
3. a
4. d
. d
!. c
". c
$. c
&. c
12 & 6=
Intangible Assets
Short Ans(er
1. *riefly describe some of the similarities and differences bet+een =... 5AA0 and IFR. +ith
res%ect to the acco#nting for intangible assets.
1. Si-ilarities incl#de A1B in =... 5AA0 and IFR.< the costs associated +ith research and
de,elo%ment are segregated into the t+o com%onentsN A2B IFR. and =... 5AA0 are similar
for intangibles ac4#ired in a b#siness combination. That is< an intangible asset is recognized
se%arately from good+ill if it re%resents contract#al or legal rights or is ca%able of being
se%arated or di,ided and sold< transferred< licensed< rented< or e(changedN A3B =nder both
5AA0s< limited life intangibles are s#bCect to amortization< b#t good+ill indefinite life
intangibles are not amortizedN rather they are assessed for im%airment on an ann#al basisN A4B
IFR. and =... 5AA0 are similar in the acco#nting for im%airments of assets held for dis%osal.
>otable i!!eren"es are? A1B +hile costs in the research %hase are al+ays e(%ensed #nder
both IFR. and =... 5AA0< #nder IFR. costs in the de,elo%ment %hase are ca%italized once
technological feasibility is achie,edN A2B IFR. %ermits some ca%italization of internally
generated intangible assets Ae.g. brand ,al#eB< if it is %robable there +ill be a f#t#re benefit
and the amo#nt can be reliably meas#red. =... 5AA0 re4#ires e(%ensing of all costs
associated +ith internally generated intangiblesN A3B IFR. re4#ires an im%airment test at each
re%orting date for long-li,ed assets and intangibles and records an im%airment if the assetHs
carrying amo#nt e(ceeds its reco,erable amo#ntN the reco,erable amo#nt is the higher of the
assetHs fair ,al#e less costs to sell and its ,al#e in #se. :al#e in #se is the f#t#re cash flo+s to
be deri,ed from the %artic#lar asset< disco#nted to %resent ,al#e. =nder =... 5AA0<
im%airment loss is meas#red as the e(cess of the carrying amo#nt o,er the assetHs fair ,al#eN
A4B IFR. allo+s re,ersal of im%airment losses +hen there has been a change in economic
conditions or in the e(%ected #se of the asset. =nder =... 5AA0< im%airment losses cannot
be re,ersed for assets to be held and #sedN the im%airment loss res#lts in a ne+ cost basis
for the assetN AB #nder IFR.< ac4#ired in-%rocess research and de,elo%ment AI0R7/B is
recognized as a se%arate intangible asset if it meets the definition of an intangible asset and
its fair ,al#e can be meas#red reliably. =... re4#ires ac4#ired I0R7/ to be +ritten off.
2. *riefly disc#ss the con,ergence efforts that are #nder+ay in the area of intangible assets.
2. The IA.* and FA.* ha,e identified a %roCect relating to the acco#nting for research and
de,elo%ment that co#ld %ossibly con,erge IFR. and =... 5AA0 on the iss#e of in-%rocess
R7/. 8ne %ossibility is to amend =... 5AA0 to allo+ ca%italization of in-%rocess R7/ similar
to the %ro,isions in IFR.. A second %roCect< in a ,ery %reliminary stage< +o#ld consider
e(%anded recognition of internally generated intangible assets. As indicated< IFR. %ermits
more recognition of intangibles com%ared to =... 5AA0. Th#s< it +ill be challenging to
de,elo% con,erged standards for intangible assets< gi,en the long-standing %rohibition on
ca%italizing intangible assets and research and de,elo%ment in =... 5AA0.
12 & 6>

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CHAPTER 12

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