1.List two assets which would not meet the ‘identifiable’ aspect of the definition of an intangible asset. (2 Marks)
2.Intangible assets acquired via a separate acquisition are always recognised. Why? (2 Marks)
The price an entity pays to acquire an intangible asset will reflect expectations about future economic benefits of the will flow to the company. This meets the probability test to identify an asset.
3.How is an intangible asset acquired as part of a business combination measured for initial recognition? Why? (2 Marks)
It is measured at fair value as part of the total cost of the business acquisition. This is because the fair value of the assets represents the probability that the future economic benefits in the asset will flow to the controlling entity.
4.List two ways that fair value could be determined for intangible assets acquired as part of a business combination. (2 Marks)
* Quoted market price in active market
* Recent similar transaction if no active market
* Valuation techniques such as net present value
5.In the research phase all expenditure on a project must be expensed. Why? (1 Mark)
In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists and will generate probable future economic benefits. It cannot be proved that the outflow builds an asset so the company cannot capitalise the costs.
6.Identify three ways in which an entity may obtain an intangible asset. (1 Mark)
* Separation acquisition
* Purchase of a business that holds an intangible
* Internally generate the asset
7.Where an intangible asset has been separately acquired how is its cost measured? (1 Mark)
It is valued at the cost paid for it at the date it was purchased. Amortization and appreciation are then based on that fair value.
8.In what circumstances could an in-process development project be recognised as an intangible asset? (2 Marks)
1. Technical feasibility of completion
2. Intention to complete/use/sell
3. Ability to use and/or sell it
4. How it will create future economic benefits
5. The availability of resources to complete
6. The ability to measure reliably the expenditure attributable during development
9.Why does IAS 38, paragraph 63 forbid the recognition of certain internally generated intangible assets? (2 Marks)
The cost of developing these internally generated intangibles cannot be distinguished from the cost of developing the business itself.
10.Where an internally generated intangible asset is recognised by an entity how is its cost measured? (2 Marks)
The cost of an internally generated intangible asset is the sum of the expenditure incurred from the date when the asset first meets recognition criteria.
11.Why does the accounting standard IAS 38 contend that an active market cannot exist for brands, newspaper mastheads, music and film publishing rights and trademarks? (1 Mark)
Because each asset is unique.
12.List two examples of activities which would be carried out in the development phase of an internal project. (2 Marks)
1. the design, construction and testing of pre-production or pre-use prototypes and models. 2. the design of tools, jigs, moulds and dies involving new technology.
13.What is the revaluation model of accounting for intangible assets and when can it be adopted? (2 Marks)
The revaluation model used a fair value that is determined by an active market. It can only be used when there is an active market for the intangible. 14.When can an entity regard an intangible asset as having an indefinite useful life? (1 Mark)
An intangible asset is infinite when the entity is capable of and intends to maintain the asset at the standard of performance at the point that it is assessed.
15.List in detail two factors which an entity would consider in determining the useful life of an intangible asset. (2 Marks)
2. Expected actions by competitors and potential competitors
16.Identify one circumstance in which the residual value of an intangible
asset with a finite useful life may be more than zero. (1 Mark)
A residual value of more than zero implies that the entity expects to dispose of the asset before the end of its economic life.
17.What is the key difference between the research phase and the development phase of an internal project? (1 Mark)
Costs associated with the project in the research phase are expensed while costs associated with the project in the development phase are capitalised.
18.XYZ Ltd has developed a new polymer for powder coating metal giving far superior weather proofing. The company has been granted a 7 year patent protecting its process and expects to be the market leader in this field for at least 1o years. What is the useful life of the process? Why? (2 Marks)
The useful life of the patent is seven years. Therefore the patient should be amortized at a rate that will leave its residual value of zero after seven years this is because once the patent expires is worth nothing it was to be sold. Therefore the fair value of the patent after seven years would be $0.00.
19.Why can Zedtoo Ltd recognise as an asset the mastheads acquired when it takes over the publishing business of Glossy Mags Ltd but that company was unable to recognise the mastheads as they developed them? (1 Mark)
When Glossy Mags developed the mastheads the cost of developing them could not be capitalized, as they could not accurately be separated from the costs in running the business. When the entire businesses sold, the master oats make up a portion of that business and the first time can be fairly valued.
20.Gizmo Ltd has inadvertently discovered an instant painkiller whilst attempting to synthesise krill oil. The painkiller is cheap to produce and is likely to capture a large share of the market. Will Gizmo Ltd be able to recognise the painkiller as an intangible asset? Why? (2 Marks)