Question 1

Under current accounting practice, intangible assets are classified as

Accepted Answer

Intangible assets are generally categorized as either limited-life or indefinite-life assets. Limited-life intangible assets have an identifiable useful life and are subject to amortization, while indefinite-life intangible assets have an unclear or infinite useful life and are not amortized but are tested for impairment annually. The other options, such as specifically identifiable or goodwill-type, are subcategories within the broader classification of limited-life and indefinite-life intangible assets. Legally restricted is another subcategory, but not a commonly used one for classifying intangible assets.

Question 2

Which characteristic is not possessed by intangible assets?

Accepted Answer

Intangible assets by definition do not have a physical existence and cannot be touched or seen.

Question 3

Which of the following characteristics do intangible assets possess?

Accepted Answer

Intangible assets are non-physical assets that have a useful life beyond one year, making them long-lived. They do not have physical existence, do not directly claim a specific amount of cash in the future, and are not typically held for resale.

Question 4

After an impairment loss is recorded for goodwill, the recoverable amount becomes the basis for the impaired asset and is used to calculate amortization in future periods.

Accepted Answer

Goodwill is not amortized but is subject to impairment testing annually or when there is an indication of impairment. If impairment is indicated, the recoverable amount is used to determine the impairment loss, but no further amortization of the impaired goodwill is recorded in future periods.

Question 5

Which of the following does not describe intangible assets?

Accepted Answer

Intangible assets are non-monetary assets, meaning they cannot be readily converted to cash.

Question 6

Which intangible assets are amortized?

Accepted Answer

The answer of Which intangible assets are amortized? ...

Question 7

Which of the following methods of amortization is normally used for intangible assets?

Accepted Answer

Straight-line method is the most commonly used method for amortizing intangible assets because it allocates the cost equally over the asset's useful life.

Question 8

Costs incurred internally to create intangibles are

Accepted Answer

Costs incurred internally to create intangibles are expensed as incurred, regardless of whether they have a limited or indefinite life. This is because the probability of realizing future economic benefits from internally generated intangibles is uncertain, and therefore they cannot be reliably measured and valued for capitalization purposes.

Question 9

Accounting for impairments for limited-life intangible assets follows the same rules used to account for impairments of plant and equipment.

Accepted Answer

Limited-life intangible assets and plant/equipment are both considered to have a finite useful life and therefore are subject to impairment testing following the same rules.

Question 10

A recovery of impairment for an intangible long-lived asset is limited to the carrying value that would have been reported had the impairment not occurred.

Accepted Answer

The answer of A recovery of impairment for an intangible...

Question 11

After an impairment loss is recorded for a limited-life intangible asset, the recoverable amount becomes the basis for the impaired asset and is used to calculate amortization in future periods.

Accepted Answer

Once an impairment loss is recognized for a limited-life intangible asset, the recoverable amount becomes the new carrying amount (or basis) of the impaired asset. The amount of the impairment loss is subtracted from the original cost of the asset to arrive at the new carrying amount. This new carrying amount is then used to calculate amortization in future periods, over the remaining useful life of the asset.

Question 12

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 13

IFRS permits reversals of impairment losses for all limited and indefinite-life intangible assets.

Accepted Answer

IFRS permits reversals of impairment losses for indefinite-life intangible assets (not previously amortized) if certain criteria are met, but it does not allow reversals for goodwill. For limited-life intangible assets, reversals are permitted if the asset's recoverable amount increases due to changes in estimates used to determine the asset's recoverable amount.

Question 14

Which of the following costs incurred internally to create an intangible asset is generally expensed?

Accepted Answer

Costs incurred during the research phase of developing an intangible asset are generally expensed as they do not meet the criteria for capitalization. Filing costs and legal costs, on the other hand, are usually capitalized as part of the cost of creating the intangible asset. Therefore, the correct choice is A, because research phase costs are the only costs that are generally expensed.

Question 15

Contra accounts must be reported for intangible assets in a manner similar to the reporting of property, plant, and equipment.

Accepted Answer

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

Question 16

IFRS requires start-up costs and initial operating losses during the early years be capitalized.

Accepted Answer

IFRS requires start-up costs and initial operating losses to be expensed in the period incurred, not capitalized.

Question 17

The cost of an intangible asset includes all of the following except

Accepted Answer

The cost of an intangible asset includes all of the options mentioned, including purchase price, legal fees, and other incidental expenses. Therefore, option D is the correct answer as it states that all of these costs are included.

Question 18

Factors considered in determining an intangible asset's useful life include all of the following except

Accepted Answer

The factors considered in determining an intangible asset's useful life include the expected use of the asset, any legal or contractual provisions that may limit the useful life, and any provisions for renewal or extension of the asset's legal life. The amortization method used is not a factor, as it is simply the accounting method used to allocate the cost of the asset over its useful life.

Question 19

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

Accepted Answer

Periodic alterations to existing products are typically considered as part of ongoing product improvement or maintenance, not research and development (R&D) costs, which are generally associated with the development of new products or technologies.

Question 20

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.

Quiz 12: Intangible Assets