Tut 5 - IA - Unseen Submission Question

GAAP: Graded Questions Intangible assets and purchased goodwill
YOU ARE REQUIRED TO PROVIDE A DETAILED DISCUSSION DETAILING WHY

YOU SELECTED THE OPTION THAT YOU DID
Question 9.1
a.
Consider the following statements relating to IAS 38 Intangible Assets:

1. Intangible assets are always initially measured at cost.
2. When measuring the fair value of intangible assets, it is always done in terms of an active market.
3. The two measurement models that may be used to subsequently measure intangible
assets include the cost model and the fair value model.
4. The revaluation model is generally considered to be impractical for the subsequent
measurement of intangible assets.
a) 1, 2, 3 and 4 are correct

b) 2, 3 and 4 are correct
c) 1 and 4 are correct
d) 2 and 3 are correct
e) None of the above options (a-d) are correct
b.
Consider the following statements relating to issues regarding classification and recognition in
terms of IAS 38 Intangible Assets:
1. An intangible asset is any identifiable asset, other than monetary assets, that has no
physical substance.
2. Before an entity may recognise an intangible asset, it must have legally enforceable rights
over an item's expected future economic benefits.
3. Before an entity may recognise an intangible asset, it must have control over the asset.
4. An intangible asset acquired in a business combination will be expensed by the acquirer if
the definition of intangible asset is not met (e.g. the identifiability criteria is not met).
5. Internally generated customer lists, brands and goodwill may be capitalised.
a) 1 and 2 are correct

b) 1 and 3 are correct
c) 1, 2 and 4 are correct
d) 1, 2 and 5 are correct
c.
Consider the following statements relating to issues regarding amortisation in terms of

IAS 38 Intangible Assets:
1. Not all intangible assets are amortised, as some have indefinite useful lives.
2. The residual value used when amortising an intangible asset is generally zero
3. All intangible assets must be amortised using the straight-line method
4. Intangible assets are amortised over thH DVVHW¶V HFRQRPLF useful life starting from the
date it is first available for use.
a) 1, 2 and 4 are correct

b) 2, 3 and 4 are correct
Chapter 9 91
d.
An entity invests C500 000 in staff training costs once every three years. Management
believed that the training gives employees a competitive advantage.
The correct accounting treatment for these costs are
a) Capitalise the training costs as an intangible asset, amortise it over three years and then
derecognise it when the next training costs are incurred.
b) Recognise as an expense in the period when incurred.
e.
Mango Limited purchased a leading chutney brand from a competitor on 1 October 20X8 for
C450 000. The brand has an estimated useful life of 25 years and zero residual value. In
orGHU WR PDLQWDLQ WKH EUDQG¶V SUHPLXP PDUNHW position, Mango Limited have incurred
marketing costs of C50 000 from 1 October 20X8 to 28 February 20X9, the end of the
financial year.
What amount is recognised as an intangible asset on the statement of financial position of

Mango Limited at 28 February 20X9?
a) C432 000
b) C482 000
c) C492 500
d) C500 000
e) C442 500
f.
Consider the following statements relating to research and development expenditure in terms
of IAS 38 Intangible Assets:
1. If the requirements of the standard for the capitalisation of development expenditure are
met, an entity has the choice to either capitalise or expense the development expenditure
2. Capitalised development expenditure must be amortised over a period not exceeding ten
years.
3. Research expenditure, other than capital expenditure on research facilities, must be
expensed as incurred.
4. Capitalised development expenditure must be reported on the statement of financial
position, as a non-current asset and within intangible assets.
a) 1 and 2 are correct

b) 3 and 4 are correct
e) 4 only is correct
g.
An entity has recognised development costs of a new drug as an intangible asset at a cost of
C1 million.
The estimated useful life is twenty years and the head of medical research believes that the
formula will realise C250 000 at the end of its useful life.
No third party has committed to purchase the intangible asset and there is no active market.
92 Chapter 9
In accounting for this intangible asset:
a) The amortisation period is twenty years, the residual value is assumed to be zero and the
amortisation period is reviewed annually.
b) The amortisation period is twenty years, the residual value is assumed to be zero and the
amortisation period cannot be changed.
c) The amortisation period is twenty years, the residual value is C250 000 and the
amortisation period is reviewed annually.
d) The amortisation period is twenty years, the residual value is C250 000 and the
amortisation period cannot be changed.
e) It is not amortised and is tested annually for impairment.
h.
Intangible assets with an indefinite useful life:
a) Should be amortised over 40 years.

b) Should be recorded at cost indefinitely.
c) Should not be amortised and should be tested for impairment at least annually.
d) Should not be amortised and should be tested for impairment only when there are
indicators of impairment.
e) Should be revalued every year and the fair value adjustment included in profit or loss.
Chapter 9 93

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GAAP: Graded Questions Intangible assets and purchased goodwill

YOU ARE REQUIRED TO PROVIDE A DETAILED DISCUSSION DETAILING WHY

Consider the following statements relating to IAS 38 Intangible Assets:

a) 1, 2, 3 and 4 are correct

a) 1 and 2 are correct

Consider the following statements relating to issues regarding amortisation in terms of

a) 1, 2 and 4 are correct

The correct accounting treatment for these costs are

What amount is recognised as an intangible asset on the statement of financial position of

a) 1 and 2 are correct

In accounting for this intangible asset:

Intangible assets with an indefinite useful life:

a) Should be amortised over 40 years.

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