INTANGIBLE ASSETS

1. PAS 38 shall be applied in accounting for intangible assets, except

A. Intangible assets that are within the scope of another Standard
B. Financial assets, as defined in IFRS 9
C. Mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil,
natural gas and similar non-regenerative resources.
D. All of the above

2. Intangible assets are

A. Identifiable non-monetary assets without physical substance
B. Properties held to earn rentals or for capital appreciation or both
C. Assets held for sale in the ordinary course of business
D. Tangible items that are held for use in the production or supply of goods or services, for rental to
others, or for administrative purposes; and are expected to be used during more than one period

3. According to the definition provided in PAS 38 Intangibles, the term “research” means
A. The application of research findings or other knowledge to a plan or design for the production of new
or substantially improved materials, deices, products, processes, systems, or services before the start of
commercial production or use
B. Original and planned investigation undertaken with the prospect of gaining new scientific or technical
knowledge and understanding
C. The use of research findings to create a substantially improved product
D. Using knowledge to materially improve a manufacturing device

4. An intangible asset shall be recognized if, and only if

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
C. Both a and b
D. Neither a nor b

5. Research expenditures
A. Are always charged to expense
B. Are always capitalized as intangible asset
C. May be charged to expense or may be capitalized
D. Are capitalized as product cost

6. Development expenditures
A. Are always charged to expense
B. Are always capitalized as intangible asset
C. May be charged to expense or may be capitalized
D. Are capitalized as product cost

7. In relation to the amortization of intangible assets, if an intangible asset has a finite useful life:
A. It must be amortized over a period not exceeding 40 years
B. It must be amortized across a period not exceeding 5 years
C. It is not subject to an annual amortization charge
D. It must be amortized over that life

8. Which of the following disclosures is not required by PAS 38?

A. Useful lives of the intangible assets
B. The line item(s) if the statement of comprehensive income in which any amortization of intangibles
assets is included
C. Reconciliation of carrying amount at the beginning and the end of the year
D. Fair value of similar intangible assets used by its competitors

9. Copyrights should be amortized over

A. twenty years.
B. their legal life.
C. the life of the creator plus fifty years.
D. their useful life or legal life, whichever is shorter.

10. A patent should be amortized over

A. twenty years.
B. its useful life.

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C. its useful life or twenty years, whichever is longer.

D. its useful life or twenty years, whichever is shorter.

11. The major problem of accounting for intangibles is determining

A. salvage value.
B. useful life.
C. fair market value.
D. separability.

12. Limited-life intangibles are reported at their

A. replacement cost.
B. carrying amount unless impaired.
C. acquisition cost.
D. liquidation value.

13. Costs incurred internally to create intangibles are

A. capitalized.
B. capitalized if they have an indefinite life.
C. expensed as incurred.
D. expensed only if they have a limited life.

14. Zane Inc. went to court this year and successfully defended its patent from infringement by a competitor.
The cost of this defense should be charged to
A. patents and amortized over the remaining useful life of the patent.
B. patents and amortized over the legal life of the patent.
C. legal fees and amortized over 5 years or less.
D. expenses of the period.

15. Which of the following is not an intangible asset?

A. Trade name
B. Research and development costs
C. Franchise
D. Copyrights

16. The intangible asset goodwill may be

A. capitalized only when purchased.
B. capitalized either when purchased or created internally.
C. capitalized only when created internally.
D. written off directly to retained earnings.

17. Which of the following research and development related costs should be capitalized and amortized over
current and future periods?
A. Administrative salaries allocated to research and development
B. Research findings purchased from another company to aid a particular research project currently in
process
C. Research and development general laboratory building which can be put to alternative uses in the
future
D. Inventory used for a specific research project

18. One of these is not an intangible asset

A. patent
B. payables
C. trademarks
D. franchise

19. Which of the following is not a required disclosure for intangible assets?
A. the amortization methods used
B. the useful life of the assets
C. amortization recognized during the period
D. all of the above are required disclosures

20. A change in an intangible asset’s residual value shall be treated as a:

A. change in accounting policy
B. change in accounting estimate

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C. change in reporting entity

D. prior period error

21. Paulsen Company’s 12/31/23 balance sheet reports assets of P6,000,000 and liabilities of P2,500,000. All
of Paulsen’s assets’ book values approximate their fair value, except for land, which has a fair value that is
P400,000 greater than its book value. On 12/31/23, Specter Corporation paid P6,100,000 to acquire Paulsen.
What amount of goodwill should Specter record as a result of this purchase?

22. Scott Company purchases Williams Company for P800,000 cash on January 1, 2023. The book value of
Williams Company’s net assets, as reflected on its December 31, 2018 balance sheet is P620,000. An analysis
by Scott on December 31, 2022 indicates that the fair value of Williams’s tangible assets exceeded the book
value by P60,000, and the fair value of identifiable intangible assets exceeded book value by P45,000. How
much goodwill should be recognized by Scott Company when recording the purchase of Williams Company?

23. Hall Co. incurred research and development costs in 2023 as follows:
Materials used in research and development projects P900,000
Equipment acquired that will have alternate future uses in future research and
6,000,000
development projects
Depreciation for 2023 on above equipment 600,000
Personnel costs of persons involved in research and development projects 1,500,000
Consulting fees paid to outsiders for research and development projects 300,000
Indirect costs reasonably allocable to research and development projects 450,000
P9,750,000
The amount of research and development costs charged to Hall's 2023 income statement should be

24. Contreras Corporation acquired a patent on May 1, 2023. Contreras paid cash of P25,000 to the seller. Legal
fees of P900 were paid related to the acquisition. What amount should be debited to the patent account?

25. Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.’s P5 par value
common stock and P75,000 cash. When the patent was initially issued to Maxi Co., Mini Corp.’s stock was selling
at P7.50 per share. When Mini Corp. acquired the patent, its stock was selling for P9 a share. Mini Corp. should
record the patent at what amount?

26. Alonzo Co. acquires 3 patents from Shaq Corp. for a total of P360,000. The patents were carried on Shaq’s
books as follows: Patent AA: P5,000; Patent BB: P2,000; and Patent CC: P3,000. When Alonzo acquired the
patents their fair market values were: Patent AA: P20,000; Patent BB: P240,000; and Patent CC: P60,000. At
what amount should Alonzo record Patent BB?

29. Jeff Corporation purchased a limited-life intangible asset for P120,000 on May 1, 2021. It has a useful life of
10 years. What total amount of amortization expense should have been recorded on the intangible asset by
December 31, 2023?

30. Fryer Products, Inc incurred the following costs during the year ended December 31, 2023:
Design, construction and testing of preproduction models P 90,000
Design of tools, molds and dies involving new technology 150,000
Laboratory research aimed at discovery of new knowledge 70,000
Quality control during commercial production, including
testing of products 180,000
The total amount to be classified and expensed as research and development is:

31. On January 2, 2023, Faye Co. bought a trademark from Krug Co. for P1,000,000. Faye retained an
independent consultant, who estimated the trademark’s remaining life to be 20 years. Its unamortized cost in
Krug’s accounting records was P760,000. Faye decided to amortize the trademark over the maximum period
allowed. In Faye’s December 31, 2023, balance sheet, what amount should be reported as accumulated
amortization?

32. On January 2, 2021, Forest Co. purchased a patent for a new consumer product for P90,000. At the time of
purchase, the patent was valid for 15 years, however, the patent’s useful life was estimated to be only 10 years
due to the competitive nature of the product. On December 31, 2023, the product was permanently withdrawn
from sale under governmental order because of a potential health hazard in the product. What amount should
Forest report as loss from obsolescence during 2023, assuming amortization is recorded at the end of each
year?

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33. Fisher Company purchased a patent on January 1, 2018 for P428,400. The patent was being amortized
over its legal of 15 years expiring on January 1, 2023. On January 1, 2021, Fisher determined that the economic
life of the patent would not last longer than 10 years from the date of acquisition. What amount should be
reported in the balance sheet as patent, net of accumulated amortization on December 31, 2023?

34. On July 1, 2021, Flat Co. signed an agreement to operate as a franchise of Gas Co. for an initial franchise
fee of P1,200,000. On the same date, Flat paid P400,000 and agreed to pay the balance in four equal payments
of P200,000 beginning July 1, 2022. The down payment is not refundable and no future services are required
of the franchisor. Flat can borrow at 14% for a loan of this type. If the franchise has definite life of 20 years,
what is the carrying value of the franchise to be reported on the December 31, 2023 balance sheet?

35. An intangible asset is acquired on January 1, 2021, for P500,000 while it has a legal life of 15 years, due to
rapidly changing technology, management estimates a useful life of only 5 years. At January 1, 2022,
management is uncertain that the process can actually be made economically feasible and decides to write-
down the intangible asset to an estimated market value of P150,000 with no change in its remaining useful life.
On January 1, 2023, having perfected the related production process, the asset is now appraised at a sound
value of P600,000. Under the revaluation model, what amount should be reported in the shareholder’s equity as
a result of revaluation?

Use the following information for items no. 36 to 40

The following are intangible assets of TITA Company:
COPYRIGHT: On January 1, 2022, TITA Company purchased a copyright for P800,000, having an estimated
useful life of 16 years. In July 1, 2023, TITA paid P120,000 for legal fees in a successful defense of the copyright.
PATENT: On July 1, 2023, TITA Company purchased a patent from the investor, who asked P2,200,000 for it.
TITA paid for the patent as follows: Cash of P600,000; issuance of 15,000 shares of its own ordinary shares with
a par value of P20 and market value of P60 per share; non-interest-bearing note payable due at the end of three
years, P500,000. The prevailing rate of interest for this type of financing is 12%. TITA estimates the useful life of
the patent to be 8 years.
TRADEMARK: TITA purchased for P1,200,000, a trademark for a very successful vitamin it markets under the
name iBIDA. The trademark is determined to have an indefinite life. A competitor recently introduced a new
product that is in direct competition with iBIDA product so the need for impairment testing arises. Data gathered
suggests that the trademark still has indefinite life, but the cash flows expected to be generated by the trademark
have been reduced to either P40,000 per year ( with 50% probability), or to P80,000 per year (with 50%
probability). The appropriate risk-free rate is 8% and the risk adjusted rate is 10%.
36. How much is the carrying amount of the copyright?

37. How much is the cost of the patent?

38. How much is the carrying amount of the patent?

39. How much is the total expenses related to the trademark in 2023?

40. How much is the total amortization expense for 2023?

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