CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS

MAY 2024 CPALE BATCH 95
PAS 38 - INTANGIBLE ASSETS
1. Which must be met for an item to be recognized as an intangible asset other than goodwill?
a. The fair value can be measured reliably.
b. The item is part of an activity aimed at gaining new scientific or technical knowledge.
c. The item is expected to be used in the production or supply of goods or services.
d. The item is nonmonetary, identifiable and lacks physical substance
2. Which of the following items would qualify as an intangible asset?
a. Advertising and promotion on the launch of huge product
b. College tuition fees paid to employees who decide to enroll in an executive MBA program.
c. Operating losses during the initial stages of the project.
d. Legal costs paid to intellectual property lawyers to register a patent.
3. Which disclosure is not required with respect to intangible assets?
a. Useful life of the intangible asset
b. Reconciliation of carrying amount at the beginning and the end of the year
c. Contractual commitment for the acquisition of intangible asset
d. Fair value of similar intangible asset used by competitors
4. What valuation methods are used for intangible assets?
a. Cost model and fair value model
b. Revaluation model and fair value model
c. Cost model and fair value through profit or loss model
d. Cost model and revaluation model
5. An entity that acquired an intangible asset may use the revaluation model for intangible asset only when
a. The useful life of the intangible asset can be reliably determined.
b. An active market exists for the intangible asset.
c. The cost of the intangible asset can be measured reliably.
d. The intangible asset is a monetary asset.
6. The cost of a separately acquired intangible asset comprises the purchase price and
a. Cost of introducing a new product or service
b. Cost of conducting a business in a new location
c. Administration and other general overhead cost
d. Directly attributable cost of preparing the asset for the intended use
7. The cost of an internally generated asset includes all of the following, except
a. Cost of materials and services used in generating the intangible asset.
b. Compensation costs of personnel directly engaged in generating the asset.
c. Fees to register a legal right.
d. Expenditure on training staff to operate the asset.
8. Under current accounting practice, intangible assets are classified as
a. Amortizable or unamortizable.
b. Limited life or indefinite life.
c. Specifically identifiable or goodwill type.
d. Legally restricted or goodwill type.
9. Entities should evaluate indefinite life intangible assets at least annually for
a. Recoverability
b. Amortization
c. Impairment
d. Estimated useful life
10. What is the appropriate method of amortizing intangible asset?
a. The straight line method, unless the pattern in which the asset’s economic benefits are consumed by
the entity can be determined reliably.
b. The double declining balance in all circumstances
c. A subjective amount of periodic amortization without regard to any particular method
d. The straight line method in all circumstances

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11. Amortization of an intangible asset with a finite useful life shall commence when
a. It is first recognized as an asset
b. It is probable that it will generate future economic benefits
c. It is available for the intended use
d. The cost can be identified with reasonable certainty
12. Which statement describes the appropriate accounting for intangible asset with finite useful life?
a. The cost of the asset is not amortized but is periodically tested for impairment
b. The cost of the asset is amortized over the useful life and the asset is never tested for impairment
c. The cost of the asset is amortized over 40 years a reasonable period
d. The cost of the asset is amortized over the useful life and the asset is periodically tested for impairment
when there is an indication of impairment
13. Intangible assets with indefinite life are tested for impairment
a. Quarterly at the quarterly reporting date
b. Annually at the annual reporting date
c. Biannually at the reporting date
d. There are no guidelines defining when intangible assets are tested for impairment
14. The major problem of accounting for intangible asset is determining
a. Fair value
b. Separability
c. Residual value
d. Useful life
15. Factors in determining the useful life of an intangible asset include all, except
a. The expected use of the asset.
b. Any legal or contractual provision that may limit the useful life.
c. Any provision for renewal or extension of the legal life.
d. The amortization method used.
16. An entity should recognize goodwill at what point?
a. Costs have been incurred in the development of goodwill.
b. Goodwill has been created in the purchase of a business.
c. The entity expects a future benefit from the creation of goodwill
d. The fair value exceeds the carrying amount.
17. Which statement accurately describes the appropriate accounting for goodwill?
a. It should be recorded at cost and amortized over 40-year period
b. It should be recorded at cost and amortized over a 10-year period
c. It should be recorded at cost and tested for impairment every three years
d. It should be recorded at cost and not amortized but tested for impairment at least annually
18. Goodwill should be tested for impairment at which of the following levels?
a. Each reporting unit
b. Each acquisition unit
c. Each identifiable long-term asset
d. Entire business as a whole
19. A patent should be amortized over
a. Twenty years
b. The useful life
c. The useful life or twenty years, whichever is longer
d. The useful life or twenty years, whichever is shorter
20. When an entity successfully defended a patent from infringement by a competitor, the cost of litigation
should be charged to
a. Patent and amortized over the legal life of the patent.
b. Legal fees and amortized over five years or less.
c. Expense of the period.
d. Patent and amortized over the remaining useful life of the patent.

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21. The cost of purchasing rights for a product that might otherwise have seriously competed with one of the
purchaser’s patented products should be
a. Charged off in the current period.
b. Amortized over the legal life of the purchased patent.
c. Added to factory overhead and allocated to production of the purchaser’s product.
d. Amortized over the remaining useful life of the patent for the product whose market would have been
impaired by competition from the newly patented product.
22. Copyright should be amortized over
a. The legal life
b. The life of the creator plus fifty years
c. Twenty years
d. The useful life or legal life, whichever is shorter.
23. What is the legal life of trademark?
a. 10 years
b. 20 years
c. 10 years and renewable after every 10 years.
d. 20 years and renewable after every 20 years.
24. Which statement is incorrect in relation to trademark?
a. A trademark can be regarded as an intangible asset with an indefinite useful life.
b. A trademark is an identifiable intangible asset.
c. A trademark with indefinite useful life is not amortized but tested for impairment at least annually.
d. A trademark is amortized and tested for impairment whenever there is an indication of impairment.
25. Which of the following should be expensed as incurred by the franchisee?
a. Amount paid to the franchisor for the franchise
b. Payment to an entity other than the franchisor for that entity’s franchise
c. Legal fees paid to the franchisee’s lawyers to obtain the franchise
d. Periodic payments to the franchisor based on the franchisee’s revenue
26. Which statement is true about development cost?
a. Development cost must be expensed.
b. Development cost is always deferred and expensed against future revenue.
c. Development cost may be capitalized as an intangible asset in very restrictive situations.
d. Development cost is recorded as component of other comprehensive income.
27. Which statement is true when an entity has recently completed a research and development project?
a. Costs incurred during the research phase can be capitalized
b. Costs incurred during the development phase can be capitalized if criteria such as technical
feasibility of the projects are met.
c. Training costs of technicians used in research can be capitalized
d. Designing of jigs and tools qualify as research activities.
28. How should research and development costs be accounted for?
a. Capitalized when incurred and then amortized over the estimated useful life.
b. Expensed in the period incurred.
c. Either capitalized or expensed depending upon materiality.
d. Expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have
alternative future use or unless contractually reimbursable.
29. Which research and development costs should be capitalized and amortized?
a. Labor and material costs incurred in building a prototype model.
b. Cost of testing equipment with alternative future use.
c. Administrative salaries allocated to research and development.
d. Research findings purchased from another entity.
30. Which research and development costs should be capitalized and amortized?
a. Research and development general laboratory building.
b. Inventory used for a specific research project.
c. Administrative salaries allocated to research.
d. Research finding purchased from another entity to aid a current research project.

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31. If an entity constructs a laboratory building to be used as a research and development facility, the cost of
the building is matched against earning
a. Research and development expense in the period of construction.
b. Depreciation deducted as part of research and development expense.
c. Depreciation or immediate writeoff depending on accounting policy.
d. An expense at such time as productive development has been obtained from the facility.
32. A research and development activity for which the cost should be expensed is
a. Engineering follow-through in early phase of commercial production
b. Design, construction, and testing of preproduction prototype and model
c. Trouble shooting in connection with breakdown during commercial production
d. Periodic design changes to existing product
33. Which is an example that would be excluded from research development costs?
a. Quality control during commercial production.
b. Laboratory research aimed at discovery of new knowledge.
c. Design, construction and testing of production prototype.
d. Testing in search for or evaluation of product alternative.
34. Which is a research and development cost?
a. Research and development performed under contract for others.
b. Development or improvement of technique and process.
c. Offshore oil exploration that is the primary activity of an entity.
d. Market research related to a major product for the entity.
35. An activity that would be expensed currently as research and development costs is
a. Engineering follow-through in an early phase of commercial production
b. Legal work in connection with patent application and the licensing of patent
c. Testing in search for or evaluation of product or process alternative
d. Adaptation of an existing capability to a particular requirement or customer need as a part of
continuing commercial activity
36. The accounting for costs incurred in creating computer software is to
a. Capitalize all costs until the software is sold.
b. Charge research and development expense when incurred until technological feasibility has been
established for the product.
c. Charge research and development expense if the computer software has alternative future use.
d. Capitalize all costs as incurred until a detailed program design or model is created.
37. A computer software purchased as an integral part of a computer controlled machine tool that cannot
operate without the specific software shall be treated as
a. Intangible asset
b. Property, plant and equipment
c. Inventory
d. Expense
38. Start-up costs including legal and state fees incurred to organize a new entity should be
a. Capitalized and never amortized
b. Capitalized and amortized over 40 years
c. Capitalized and amortized over 5 years
d. Expensed as incurred
39. Operating losses incurred during the start-up years of a new business should be
a. Accounted for and reported like operating losses of any other business
b. Written off directly against retained earnings
c. Capitalized as a deferred charge and amortized over five years
d. Capitalized as an intangible asset and amortized over twenty years
40. Intangible assets are reported in the statement of financial position
a. With an accumulated amortization account
b. Under property, plant and equipment
c. As a separate line item
d. All of these are allowed in presenting intangible assets

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