Question 1

After initial recognition,the acquirer shall recognise goodwill at:

Accepted Answer

Goodwill is recognized at cost less accumulated impairment losses after initial recognition, as it is not amortized but tested for impairment annually.

Question 2

Big Ltd has purchased 100 per cent of Little Ltd for a cash payment of $800,000.The additional costs to Big Ltd to complete the purchase were $3,000.An extract from the balance sheet for Little Ltd at the date of acquisition shows:  Additional information:
The assets and liabilities of Little Ltd are stated at fair value except that:
Land and buildings have a fair value of $300,000
Accounts receivable have a fair value of $20,000
Little owns a licence that has not been recorded in the accounts.Its fair value is $150,000.
What is the amount of purchased goodwill,if any,that has been acquired by Big Ltd?

Accepted Answer

The answer of Big Ltd has purchased 100 per cent...

Question 3

Prior to the introduction of impairment testing companies had attempted to manipulate their accounts through amortisation:

Accepted Answer

Both options A and B are correct, and option D includes both of them. Option C is not entirely accurate, as higher amortization expenses would not necessarily result in reduced profits, and therefore lower tax payments.

Question 4

Broadbeach Ltd is a manufacturing company with three subsidiaries.The following information relates to the goodwill account of Broadbeach Ltd for the year ended 30 June 2009:  In accordance with AASB 136,what is the net effect of above goodwill accounts on the income statement and balance sheet of Broadbeach Ltd?

Accepted Answer

The answer of Broadbeach Ltd is a manufacturing company with...

Question 5

Which of the following statements is correct with respect to intangible assets?

Accepted Answer

Internally generated brands are not recognized as intangible assets because it is difficult to separate the costs of developing these brands from the overall business development costs.

Question 6

Shelley Beach Ltd has one cash generating unit (CGU)and it has been determined that the CGU has incurred an impairment loss of $80,000 for the year ended 30 June 2012. The carrying amounts of the assets as at 30 June 2012 are as follows:
 In accordance with AASB 136 "Impairment of Assets",what should be the carrying amounts for buildings,equipment and goodwill as at 30 June 2012,respectively?

Accepted Answer

The answer of Shelley Beach Ltd has one cash generating...

Question 7

Which of the following statement(s)in regard to goodwill is/are correct in accordance with AASB 136 "Impairment of Assets"?

Accepted Answer

All of the statements are correct in accordance with AASB 136 "Impairment of Assets".

Question 8

Which of the following statements in regard to goodwill is/are correct in accordance with AASB 136 "Impairment of Assets"?

Accepted Answer

None of the given statements is correct in accordance with AASB 136 "Impairment of Assets". Goodwill cannot be amortised, it must be tested for impairment every year or whenever there is an indication of impairment, upward revaluation of goodwill is not permitted, and it cannot be reversed as a prior year's impairment loss.

Question 9

Which of the following expenses are likely to satisfy the definition of an asset,and hence may be capitalised as an intangible asset?

Accepted Answer

The answer of Which of the following expenses are likely...

Question 10

Prior to the introduction of AASB 138 companies had found ways to circumvent the requirements of the revised (1996)version of AASB 1013.These methods included.

Accepted Answer

The answer of Prior to the introduction of AASB 138...

Question 11

AASB 138 contains some elements that seem to be reactions to opportunistic behaviour by preparers of accounts and to the degree of uncertainty surrounding goodwill as an unidentifiable intangible asset.These elements include:

Accepted Answer

AASB 138 prohibits the recording of internally generated goodwill and specifies impairment testing as a reaction to opportunistic behavior by preparers of accounts who may overstate the value of internally generated goodwill. The requirement to use a specific rate of amortisation is not mentioned as a reaction to such behavior or to the uncertainty surrounding goodwill as an unidentifiable intangible asset. Therefore, option D is the correct answer.

Question 12

Which of the following intangible assets should be recognised in the balance sheet?

Accepted Answer

Only intangible assets with identifiable and active markets should be recognized on the balance sheet. This includes licenses with active markets and purchased trademarks. Internally generated goodwill cannot be recognized as an asset since it cannot be reliably measured, and excess goodwill cannot be recognized separately from the overall value of the business.

Question 13

During 2001 the Financial Accounting Standards Board in the United States indicated they would look to change a requirement for the treatment of goodwill.That change is:

Accepted Answer

The statement indicates that the FASB plans to change the requirement for the treatment of goodwill. Specifically, they plan to remove the requirement to amortize goodwill and replace it with a requirement to write-down goodwill to reflect any impairment in value. This means that instead of spreading the cost of goodwill over a number of years, companies will have to adjust the value of goodwill if it becomes impaired.

Question 14

The argument by Pacific Dunlop (1994)is that the accounting treatment of goodwill,particularly the requirement to amortise it over 20 years,places Australian companies at a competitive disadvantage internationally.Miller (1995)analyses this view and argues that:

Accepted Answer

Miller argues that sophisticated users understand that amortisation of goodwill does not affect cash flows directly, but the lack of tax deductions for amortisation in Australia negatively impacts companies.

Question 15

The approach to accounting for intangibles raises some issues because:

Accepted Answer

The approach to accounting for intangibles only allows for recognition of certain types of intangible assets, and internally generated assets often do not meet the criteria for recognition. This can lead to a lack of completeness in the financial statements.

Answer: D
 The active market criteria for recording intangible assets at fair value may lead to overstatement of values, as market prices may not always reflect the true economic value of the asset.

Question 16

In accordance with AASB 136 "Impairment of Assets" what should be the carrying amount of equipment as at 30 June 2012?

Accepted Answer

According to AASB 136, if an asset's recoverable amount is less than its carrying amount, then the carrying amount should be reduced to its recoverable amount. In this case, the equipment's recoverable amount is $150,000, which is less than the carrying amount of $190,000. Therefore, the carrying amount should be reduced to $150,000.

Question 17

Palm Beach Ltd has a cash generating unit (CGU)and has been assessed for impairment and it has determined an impairment loss of $100,000. The following information relates to the assets as at 30 June 2012.
 In accordance with AASB 136 "Impairment of Assets" what should be the carrying amount of buildings as at 30 June 2012?

Accepted Answer

The answer of Palm Beach Ltd has a cash generating...

Question 18

As part of adopting IFRS,goodwill acquired in a business combination is no longer amortised.Instead,the acquirer shall test goodwill for impairment (AASB 3 "Business Combinations").When is goodwill considered to be impaired?

Accepted Answer

Goodwill is considered to be impaired if the recoverable amount of the cash generating unit is less than the unit's carrying amount. This means that the value of the unit's assets and cash flows is lower than the amount recorded on the balance sheet, indicating that the goodwill is no longer worth its carrying amount and should be written down.

Question 19

Broadbeach Ltd is a manufacturing company with three subsidiaries.The following information relates to the goodwill account of Broadbeach Ltd for the year ended 30 June 2009:  What is the carrying amount of goodwill as at 30 June 2009 consistent with AASB 136 "Impairment of Assets"?

Accepted Answer

The answer of Broadbeach Ltd is a manufacturing company with...

Question 20

Which of the following combination best demonstrates the value of goodwill? I.Purchase consideration of subsidiary
II.Book Value of net assets held by subsidiary
III.Fair value of net identifiable assets
IV.Contingent liabilities

Accepted Answer

Goodwill is the difference between the purchase consideration of a subsidiary and the fair value of its net identifiable assets (assets minus liabilities). Contingent liabilities are subtracted from this difference to arrive at the actual value of goodwill. Therefore, the correct formula is I less (III-IV).

Quiz 8: Accounting for Intangibles

After initial recognition,the acquirer shall recognise goodwill at:

Prior to the introduction of impairment testing companies had attempted to manipulate their accounts through amortisation:

Which of the following statements is correct with respect to intangible assets?

Which of the following statement(s) in regard to goodwill is/are correct in accordance with AASB 136 "Impairment of Assets"?

Which of the following statements in regard to goodwill is/are correct in accordance with AASB 136 "Impairment of Assets"?

Which of the following expenses are likely to satisfy the definition of an asset,and hence may be capitalised as an intangible asset?

Prior to the introduction of AASB 138 companies had found ways to circumvent the requirements of the revised (1996) version of AASB 1013.These methods included.

AASB 138 contains some elements that seem to be reactions to opportunistic behaviour by preparers of accounts and to the degree of uncertainty surrounding goodwill as an unidentifiable intangible asset.These elements include:

Which of the following intangible assets should be recognised in the balance sheet?

During 2001 the Financial Accounting Standards Board in the United States indicated they would look to change a requirement for the treatment of goodwill.That change is:

The argument by Pacific Dunlop (1994) is that the accounting treatment of goodwill,particularly the requirement to amortise it over 20 years,places Australian companies at a competitive disadvantage internationally.Miller (1995) analyses this view and argues that:

The approach to accounting for intangibles raises some issues because:

In accordance with AASB 136 "Impairment of Assets" what should be the carrying amount of equipment as at 30 June 2012?

As part of adopting IFRS,goodwill acquired in a business combination is no longer amortised.Instead,the acquirer shall test goodwill for impairment (AASB 3 "Business Combinations") .When is goodwill considered to be impaired?

Broadbeach Ltd is a manufacturing company with three subsidiaries.The following information relates to the goodwill account of Broadbeach Ltd for the year ended 30 June 2009: What is the carrying amount of goodwill as at 30 June 2009 consistent with AASB 136 "Impairment of Assets"?

Which of the following combination best demonstrates the value of goodwill? I.Purchase consideration of subsidiary II.Book Value of net assets held by subsidiary III.Fair value of net identifiable assets IV.Contingent liabilities