Question 1

Amortization of limited-life intangible assets should not be impacted by expected residual values.

Accepted Answer

Amortization of limited-life intangible assets should consider expected residual values, as they represent the estimated value at the end of the asset's useful life, affecting the total amount to be amortized.

Question 2

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

Accepted Answer

Research and development costs are expensed as incurred under U.S. GAAP, except for certain development costs in the software industry or where costs are capitalized as part of tangible assets. The costs directly associated with securing a patent (legal fees, filing fees, etc.) can be capitalized, but not the research and development costs themselves.

Question 3

If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized.

Accepted Answer

According to ASC 350-30-35-17, if the fair value of an unlimited life intangible other than goodwill is less than its carrying amount, an impairment loss must be recognized.

Question 4

All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs.

Accepted Answer

According to accounting standards, all intangible assets are subject to periodic impairment tests and potential write-downs if their carrying value exceeds their recoverable amount.

Question 5

Internally generated intangible assets are initially recorded at fair value.

Accepted Answer

Internally generated intangible assets are not recorded at fair value. They are typically recorded at their cost of development, which includes all directly attributable costs necessary to create the asset.

Question 6

In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible assets, with the remainder recorded as goodwill.

Accepted Answer

This is the correct allocation method for a business combination according to GAAP and IFRS. If the cost cannot be assigned to specific assets, it is recorded as goodwill.

Question 7

The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles.

Accepted Answer

The recoverability test for impairments of property, plant, and equipment typically involves comparing the carrying amount of the asset to its future undiscounted cash flows to determine if an impairment is necessary. For indefinite-life intangibles, impairment testing involves comparing the carrying amount of the asset to its fair value, without the need to estimate future cash flows.

Question 8

The cost of purchased patents should be amortized over the remaining legal life of the patent.

Accepted Answer

The cost of purchased patents should be amortized over their useful life, not necessarily their remaining legal life, as the useful life could be shorter due to obsolescence or other factors.

Question 9

If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent.

Accepted Answer

When a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent. This is because the new patent is essentially an extension or improvement of the original patent, and the cost of acquiring it includes the remaining value of the original patent.

Question 10

If market value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.

Accepted Answer

Under U.S. GAAP, once an impairment loss is recognized for assets held for use, it cannot be reversed if the fair value of the asset subsequently increases. However, under IFRS, impairment losses on some assets (like property, plant, and equipment) can be reversed if the asset's recoverable amount increases in a subsequent period.

Question 11

Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.

Accepted Answer

Internally generated goodwill cannot be recorded as an asset on the balance sheet, regardless of whether a firm offer to purchase the business unit has been received. Goodwill can only be recorded when it is purchased, i.e., during an acquisition of another company.

Question 12

Contra accounts must be reported for intangible assets in a manner similar to accumu-lated depreciation and property, plant, and equipment.

Accepted Answer

The answer of Contra accounts must be reported for intangible...

Question 13

Limited-life intangibles are amortized by systematic charges to expense over their useful life.

Accepted Answer

Limited-life intangibles have a finite useful life and are amortized (systematically charged to expense) over that useful life. This is in contrast to indefinite-life intangibles, which are not amortized but rather tested for impairment regularly.

Question 14

Periodic alterations to existing products are an example of research and development costs.

Accepted Answer

Periodic alterations to existing products require research and development efforts to design and implement changes, therefore they are an example of research and development costs.

Question 15

Research and development costs are recorded as an intangible asset if it is felt they will provide economic benefits in future years.

Accepted Answer

This is true. Research and development costs can be capitalized as an intangible asset if they meet specific criteria, such as being technically feasible and providing future economic benefits. Otherwise, they are expensed as incurred.

Question 16

Internally created intangibles are recorded at cost.

Accepted Answer

Internally created intangibles are not recorded at cost, but rather expensed in the period they are incurred. Only certain externally acquired intangibles are recorded at cost.

Question 17

Some intangible assets are not required to be amortized every year.

Accepted Answer

Some intangible assets such as trademarks, trade names and goodwill are not required to be amortized every year, but they need to be tested for impairment annually or more frequently if there is an indication of impairment.

Question 18

Intangible assets derive their value from the right (claim) to receive cash in the future.

Accepted Answer

Intangible assets derive their value from non-physical attributes such as intellectual property, brand recognition, and patents, not directly from the right to receive cash in the future.

Question 19

The cost of acquiring a customer list from another company is recorded as an intangible asset.

Accepted Answer

Acquiring a customer list from another company is considered an intangible asset because it does not have physical form but has economic value and can generate future benefits for the company.

Question 20

Internally generated goodwill should not be capitalized in the accounts.

Accepted Answer

Internally generated goodwill cannot be reliably measured and is therefore not allowed to be capitalized in the accounts according to accounting standards. Only goodwill acquired through a business combination can be recognized and capitalized.

Quiz 12: Intangible Assets