Chapter 32SMEs- Intangible Assets QUESTIONS 1.) Define an intangible asset. 2.) When is an intangible asset identifiable? 3.) Explain the recognition of an intangible asset. 4.) Explain the initial measurement of an intangible asset acquired separately. 5.) Explain the initial measurement of an intangible asset acquired in a business combination. 6.) Explain the initial measurement of an intangible asset acquired by government grant. 7.) Explain the initial measurement of an intangible asset acquired by exchange. 8.) Explain the recognition of an internally generated intangible asset. 9.) Give example of items that are not capitalized as cost of intangible asset but expensed when incurred. 10.) Explain the subsequent measurement of an intangible asset under PFRS for SMEs 11.) Explain the useful life of an intangible asset. 12.) Explain the amortization period for an intangible asset. 13.) Explain the amortization method for an intangible asset. 14.) Explain the residual value of an intangible asset. 15.) Compare PFRS for SMEs and full PFRS with respect to intangible asset. Problem 32-1 Multiple Choice (IFRS) 1. An intangible asset is defined as a. b. c. d. An identifiable asset without physical substance. A nonmonetary asset without physical substance. An identifiable nonmonetary asset without physical substance. An identifiable monetary and nonmonetary asset without physical substance. 2. An intangible asset is identifiable when a. b. c. d. It It It It is separable. arises from contractual and other legal right. is acquired in business combination. is separable or it arises from contractual and other legal right. 3. On January 1, 2007 an SME (a publisher) acquired competitor’s publishing title at certain amount. On January 1, 2010, the entity commenced publishing using the new title. On December 31, 2014, the entity decided to sell the publishing title and took actions that make the sale within 12 months highly probable. The publishing title d. An intangible asset from January 1. 2014 and as noncurrent asset held for sale from December 31. 2015. The useful life of the intangible asset of an SME is considered to be a. b. At fair value or at cost less any accumulated impairment losses on an item-by-item basis. 2014 to March 31. 2015. Fifteen years d. 2015. An SME must measure intangible assets after initial recognition a. An SME acquired a trademark that has a remaining legal life of five years but is renewable every ten years at a little cost. c. 5. Five years b. b. b. Under PFRS for SMEs. The entity shall account for the publishing title as a. c. Indefinite 6. An item of inventory from January 1.was sold on March 31. 2015. d. d. 2007 to December 31. Presumed to be 10 years. 2007 to the date of disposal on March 31. It is internally generated It is acquired as part of business combination It is acquired by way of government grant. An intangible asset from January 1. if the entity is unable to make reliable estimate of the useful life c. 2014 to the date of disposal on March 31. c. Either finite or indefinite Finite Indefinite Ten years . 2014 and as an inventory from December 31. 2015. An intangible asset from January 1. b. d. 7. 2007 to December 31. the cost of an intangible asset at initial recognition is measured at fair value when a. c. At fair value. 2007 to the date of disposal on March 31. 4. At cost less any accumulated amortization and any accumulated losses. It is acquired as part of business combinations or acquired by way of government grant. The useful life of the trademark is a. At fair value or at cost less any accumulated amortization and any accumulated impairment losses for all items in the same class of intangible asset. II. b. c. Which is not possessed by an intangible asset? a. Problem 32-2 Multiple choice (IAA) 1. plant and equipment As a separate line item. It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity b. All research costs are capitalized when certain criteria are met and all development costs are expensed when incurred. None of these 2. An SME shall recognize an intangible asset when a. a. c. All intangible asset including goodwill are amortized over the useful life. d. With an accumulated amortization Under property. Identifiable . d. b. Physical existence b. b. All intangible assets with indefinite useful life are not amortized but tested for impairment annually and whenever there is an indication that the intangible asset may be impaired. All research and development costs are expensed when incurred. Which of the following statement is true in relation to the amortization of the intangible assets of an SME? I. What is the accounting for research and development cost incurred by an SME? a. c. d.8. Intangible assets are reported in the statement of financial position a. 10. All research and development costs are capitalized. All research costs are expensed when incurred and all development costs are capitalized when criteria are met d. I only II only Both I and II Neither I nor II 9. All of these. The intangible asset does not result from expenditure incurred internally on an intangible item. The cost or value of the asset can be measured reliably c. Operating losses incurred during the start-up years of a new business should be a. b. Capitalized and amortized over 5 years. Goodwill . Copyright Customer list Goodwill All of these intangible assets should be amortized. Accounted for and reported like the operating losses of any other business. Future benefit d. Copyright c. Written off directly against retained earnings c. Capitalized and never amortized. b. d. c. Start-up costs incurred to operate a new business should be a. Expensed over current and future years 3. c. Which of the following intangible assets should be amortized under PFRS and SMEs? a. Which of the following intangible assets could not be sold separately? a. b.c. Capitalized and amortized over 40 years. b. Capitalized as a deferred charge d. b. Capitalized as an intangible asset. 7. c. Research and development cost Cost to internally generate goodwill Organization cost Filing fee for a patent 5. Expensed as incurred 8. Patent b. 6. d. d. The costs of an intangible asset includes all except a. c. Purchase price Legal fee Other incidental expenses All of these are included 4. Which of the following costs should be capitalized in the years incurred? a. d. including P10. 30. Trademark 9. c.000 June 30 Legal cost directly attributable to the acquisition of the taxi license.000 The economic life of the taxi license is 5 years from the date of acquisition on June 30 2014 with NIL residual value.000 refundable purchase taxes 100. It represent the purchase price of a business b.000 July 1 Payment for an advertisement to be published monthly for the next 12 months In a local daily newspaper 50. The value of a business is computed without consideration of goodwill d. b.000 July 1 Printing business cards of the drivers 10. d. Problem 32-3 (IFRS) An SME incurred the following expenditures in establishing a taxi business in a local city during 2014: May 1 General start-up cost 15. It is based on estimate. Goodwill is a master valuation account because a. 2014 . Goodwill may be recorded when a.000 June 30 Payment to the taxi licensing authority for the taxi license. It is the difference between the purchase price and the fair value of the net identifiable assets acquired c.d. The taxi drivers own the vehicles they operate under SMEs taxi licenses. REQUIRED: Prepare journal entries to record the transaction of SME for the year ended December 31. It is purchased from another entity One entity acquires another in a business combination The fair value exceeds cost An entity has exceptional customer relation 10. On December 31. d.000 on same date. b.000 120. The fair value less cost of disposal of the patent is P 600. 2014. What is the impairment loss to be recognized for the patent in 2014? a. 2010. the management assessed that the useful life of the patent is 20 years from the date of acquisition.000 0 . the management assessed that the useful life of the patent is 14 years from the date of acquisition.000. c.000 200.000. An SME acquired a patent for P 1.000 on same date.300. On December 31. 300. The fair value less cost of disposal of the patent is P 1.Problem 32-4 (IFRS) On January 1. 2010.