THEORIES
1. An intangible asset is defined as
a. An identifiable asset without physical substance
b. A nonmonetary asset without physical substance
c. An identifiable nonmonetary asset without physicalsubstance.
d. An identifiable monetary and nonmonetary asset without physical substance
2. Which of the following statements is true concerning the criterion of identifiability of an intangible asset?
I.
II.
3.
An intangible asset is identifiable when it is separable, meaning, the asset could be sold,
transferred, licensed, rented or exchanged.
An intangible asset is identifiable when it arises from contractual or legal right.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
Which of the following statements is true concerning the criterion of control by the entity of an
intangible asset?
I.
The
capacity
of
the
entity
to
control
the
economic
benefits from an intangible asset would normally stem from legal
le gal rights that are enforceable in a
court of law.
II.
The skill of employees arising out of the benefits of training costs can be recognized as intangible
asset.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
4. An intangible asset shall be recognized if
I.
It is probable that future economic benefits attributable to the asset will flow to the entity.
II.
The cost of the intangible asset can be measured reliably.
a.
b.
c.
d.
Both I and II
Neither I nor I
I only
II only
5. Which of the following statements is true concerning separate acquisition of an intangible
intan gible asset?
I.
If an intangible asset is acquired separately, the cost of the intangible asset can usually be
measured reliably.
II.
If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal to the
cash price equivalent.
a.
b.
c.
d.
I only
II only
Both I and II
Neither I nor II
6. Which is incorrect concerning acquisition of an intangible asset as part of a business combination?
a. The cost of the intangible asset is based on its fair value at the date of acquisition.
b. If there is an active market from the intangible asset, the fair value is equal to the quoted market
price which is usually the current bid price.
c. If there is no active market for the intangible asset, the fair value is equal to the amount that would
be paid by the entity in an arm's length transaction between knowledgeable and willing parties.
d. The fair value of an intangible asset acquired in abusiness combination cannot be
measuredsufficient reliability separately from goodwill.
7. Which of the following statements in relation to intangible assets is true?
I.
Internally generated brands, mastheads, publishing titles, customer lists and items similar in
substance shall not be recognized as intangible assets.
II.
The cost of internally generated intangible asset comprises all directly attributable cost necessary
to create, produce and prepare the asset for its intended use.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
8. 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.
9. All of the following expenditures shall be expensed when incurred, except
a. Start up costs
b. Advertising and promotion costs
c. Business relocation or reorganization cost
d. Payment in advance of delivery of goods or the rendering of services
10. Which of the following statements is true concerning amortization of intangible assets?
I.
Intangible assets with limited or finite life are amortized over their useful life.
II.
Intangible assets with indefinite life are not amortized but are tested for impairment at least
annually.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
11. It is the systematic allocation of the depreciable amount of an intangible asset over the asset's useful life.
a. Amortization
b. Allocation
c. Realization
d. Expiration
12. The amortization method used shall reflect the pattern in which the asset's economic benefits are
consumed by the entity. If such pattern cannot be determined reliably, what is the amortization method
used?
a. Straight line
b. Production method
c. Diminishing balance method
d. Ratio of current year's sales to the total expected sales
13. The residual value of an intangible asset shall be presumed to zero, unless
I.
There is a commitment by a third party to purchase the asset at the end of its useful life.
II.
There is an active market for the asset and residual value determined by reference to that market
and it is probable that such market will exist at the end of the asset's useful life.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
14. The factors that are considered in determining the useful life of an intangible asset include all of the
following, except
a. Technical obsolescence
b. Expected action of competitors
c. Expected usage of the asset by the entity
d. Residual value
15. Which of the following statements is true concerning useful life of an intangible asset?
I.
An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit
to the period over which the asset is expected to generate net cash inflows to the entity.
II.
The useful life of an intangible asset arising from contractual or other legal rights shall not exceed
the period of those rights but may be shorter depending on the period over which the asset is
expected to be used by the entity.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
16. An intangible asset acquired by way of government grant may be initially recorded at
I.
Fair value
II.
Nominal amount or zero, plus any expenditure that is directly attributable to preparing the asset for
its intended use
a. I only
b. II only
c. Either I or II
d. Neither I nor I
17. The cost of a separately acquired intangible asset comprises its purchase price, including import duties and
nonrefundable purchase taxes, and
a. Costs of introducing a new product or service
b. Costs of conducting a business in a new location
c. Administration and other general overhead costs
d. Directly attributable costs of preparing the asset for its intended use.
18. Directly attributable costs of preparing the intangible asset for its intended use include all, except
a. Cost of employee benefits arising directly from bringing the asset to its working condition
b. Professional fees arising directly from bringing the asset to its working condition
c. Cost of testing whether the asset is functioning properly
d. Initial operating losses
19. After initial recognition, an intangible asset shall be carried using the
a. Cost model only
b. Revaluation model only
c. Either cost model or revaluation model
d. Neither cost model nor revaluation model
20. Which of the following represents the maximum amortization period mandated for intangible assets with
maximum finite useful life?
a. 10 years
b. 20 years
c. 40 years
arbitrary
cap
on
the
useful
life
has
been
established.
d. No
21. Which of the following items does not qualify as an intangible asset?
a. Computer software
b. Registered patent
c. Copyright that is protected
d. Notebook computer
22. Which of the following items would qualify as an intangible asset?
a. Advertising and promotion on the launch of a huge product.
b. College tuition fees paid to employees who decide to enroll in an executive M.B.A program at
Harvard University while working with the entity.
c. Operating losses during the initial stages of the project.
d. Legal costs paid to intellectual property lawyers toregister a patent.
23. Once recognized, intangıble assets can be ca rried at
a. Cost less accumulated amortization
b. Cost less accumulated amortization and impairment losses
c. Revalued amount less accumulated amortization
d. Cost plus a notional increase in fair value since the intangible asset is acquired
24. Which disclosure is not required with respect to intangible assets?
a. Useful lives of the intangible assets
b. Reconciliation of carrying amount at the beginning and the end of the year
c. Contractual commitments for the acquisition of intangible assets
d. Fair value of similar intangible assets used by its competitors
25. A consideration in determining the useful life of an intangible asset is not the
a. Legal, regulatory or contractual provision
b. Provision for renewal or extension
c. Initial cost
d. Obsolescence
26. 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 use.
d. The cost can be identified with reasonable certainty.
27. A brand name that was acquired separately shall initially be recognized at
a. Recoverable amount
b. Either cost or fair value at the choice of the acquirer
c. Fair value
d. Cost
28. The recognition criteria for an intangible asset include which of the following conditions?
I.
It must be measured at cost.
II.
Its cost can be measured reliably.
III.
It is probable that future economic benefits will arise from its use.
a. I, II, and III
b. I and II only
c. I and III only
d. II and III only
29. Which of the following statements in relation to intangible assets is true?
I.
Intangible assets cannot be treated as having an indefinite useful life.
II.
Intangible assets with a finite useful life shall be measured at cost and tested annually for
impairment.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
30. Which of the following statements in relation to intangible assets acquired in a business combination is
true?
59. Green Company incurred the following costs during the cu rrent year:
Start-up costs incurred when opening a new plant
R and D equipment with useful life of four years in various R and D projects
Advertising expense to introduce a new product
P 600,000
500,000
1,000,000
What amount should be recorded as research and development expense?
a. 1,500,000
b. 500,000
c. 600,000
d. 2,100,000
Solution: B.
R and D equipment with useful life of four years
P 500,000
60. Shawarma Company spent P3,000,000 on a new software package that is to be used only for internal use.
The amount was spent after the application development stage.
The economic life of the product is expected to be three years. The equipment on which the package is to
be used is being depreciated over six years.
What amount of expense should be reported for the first full year?
a. 3,000,000
b. 2,000,000
c. 1,000,000
d. 500,000
Solution: C.
Amortization (3,000,000 / 3)
P 1,000,000
Questions 61 - 62 are based on the following:
Monkey Company has been working on creating a new tablet to compete with existing tablets. The entity
is confident it has the ability to sell the asset and show a profit.
The entity spent P2,000,000 during the first quarter of the year studying alternatives.
During the second quarter, the entity spent an additional P500,000 improving one alternative at which
point it became technologically and economically feasible.
During the third quarter, the entity spent another P 1,000,000 on the tablet making it ready for use and sale
by the end of the year.
61. What amount should be capitalized?
a. 2,000,000
b. 1,000,000
c. 3,000,000
d. 2,500,000
Solution: B.
Capitalizable cost
P 1,000,000
62. What amount should expensed immediately?
a. 2,000,000
b. 1,000,000
c. 3,000,000
d. 2,500,000
Solution: D.
First quarter
Second quarter
Costs charged as expense
P 2,000,000
500,000
P 2,500,000
63. On January 1, 2019, Baby Company signed an eight-year lease for office space. The entity has the option
to renew the lease for an additional four-year period on or before January 1, 2026.
During January 2019, the entity incurred the following costs:

P1,200,000 for general improvements to the leased premises with an estimated useful life of ten years.

P690,000 for office furniture and equipment with an estimated useful life of ten years.

P420,000 for moveable assembly line equipment with useful life of five years.
On December 31, 2019, the entity's intention as to exercise of the renewal option is uncertain.
What is the accumulated depreciation of leasehold improvement on December 31, 2019?
a. 292,500
b. 175,000
c. 150,000
d. 125,000
Solution: C.
Accumulated depreciation - December 31, 2019 (1,200,000 / 8)
P 150,000
64. At the beginning of the current year, Masbud Company purchased Fat Company at a cost that resulted in
recognition of goodwill of P1,000,000.
During the year, Masbud Company spent an additional P500,000 on expenditures designed to develop and
maintain goodwill by training and hiring new employees.
Due to these expenditures, Masbud Company estimated that the benefit period of goodwill was inde finite.
What amount should be reported as goodwill at year-end?
a. 1,000,000
b. 1,500,000
c. 500,000
d. 750,000
Solution: A.
Cost of goodwill - January 1 2019
P 1,000,000
65. At year-end, Bing Company purchased for P20 per share all 200,000 of Geller Company's outstanding
ordinary shares.
On this date, the carrying amount of net assets of the acquiree was P3,000,000.
The fair value of identifiable assets on this date was P 100,000 in excess of their carrying amount.
What amount should be reported as goodwill?
a. 900,000
b. 1,000,000
c. 100,000
d. 4,000,000
Solution: A.
Acquisition cost (200,000 x 20)
Fair value of net assets (3,000,000 + 100,000)
Goodwill
P 4,000,000
(3,100,000)
P 900,000
What is total amount of costs that should be expensed when incurred?
a. 325,000
b. 875,000
c. 775,000
d. 1,000,000
Solution: D.
Cost of testing the prototype
P 225,000
Labor and material costs incurred in producing a prototype model
Research and development expense
775,000
P 1,000,000
69. Chicharap Company incurred the following costs during the current year:
Seasonal design changes to existing products
P 900,000
Modification to the formulation of a chemical product
200,000
Trouble-shooting in connection with breakdowns during commercial production
700,000
What amount should be reported as research and development expense?
a. 200,000
b. 700,000
c. 900,000
d. 1,800,000
Solution: A.
Modification to the formulation of a chemical product
P 200,000
70. Boobear Company incurred the following costs related to a new solar-powered car:
Salaries of laboratory employees researching how to build the new car
P 700,000
Legal fees for the patent application for the new car
200,000
Marketing research to promote the new car
950,000
Design, testing, and construction of prototype
300,000
What amount should be reported as research and development expense for the current year?
a. 950,000
b. 1,150,000
c. 1,000,000
d. 300,000
Solution: C.
Salaries of laboratory employees researching how to build the new car
Design, testing, and construction of prototype
Research and development expense
P 700,000
300,000
P 1,000,000