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 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. Both I and II
b. Neither I nor I
c. I only
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d. II only
5. Which of the following statements is true concerning separate acquisition of an intangible 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. I only
b. II only
c. Both I and II
d. 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.
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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.
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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
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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
d. No
arbitrary
cap
on
the
useful
life
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.
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has
been
established.
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 carried 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
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d. Cost
28. The recognition criteria for an intangible asset include which of the following conditions?
I.
It must be measured at cost.
II.
III.
Its cost can be measured reliably.
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?
I.
Intangible assets acquired in a business combination shall only be recognized if they have already
been recognized by the entity being acquired.
II.
Intangible assets acquired in a business combination shall not be recognized separately from
goodwill.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
31. Goodwill shall be recognized only when
a. It is purchased from another entity.
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b. It can be established that a definite benefit or advantage has resulted to an entity from some item
such as good name, capable staff or reputation.
c. It is acquired through the purchase of another business entity.
d. An entity reports super normal earnings for five or more consecutive years.
32. What does the standard require with respect to accounting for goodwill?
a. Goodwill should be amortized over a five-year period.
b. Goodwill should be amortized over the expected useful life.
c. Goodwill should be recorded and never adjusted.
d. Goodwill should be recorded and periodically evaluated for impairment.
33. Goodwill should be tested periodically for impairment
a. For the entity as a whole.
b. At the subsidiary level.
c. At the industry segment level.
d. At the operating segment level or one level below.
34. An entity is performing its annual test of the impairment of goodwill for a cash generating unit. The entity
has determined that the fair value of the unit exceeds the carrying amount. Which of the following
statements is true concerning the test of impairment?
a. Impairment is not indicated and no additional analysis is necessary.
b. Goodwill should be written down as impaired.
c. The assets and liabilities should be valued to determine there has been an impairment of goodwill.
d. Goodwill should be retested at the entity level.
35. An impairment loss recognized for goodwill
a. Shall not be reversed in a subsequent year.
b. May be reversed fully in a subsequent year.
c. May be reversed partly in a subsequent year.
d. Shall be reversed in a subsequent year.
36. How should research and development costs be accounted for?
a. Must be capitalized when incurred and then amortized over the useful life.
b. Must be expensed in the period incurred.
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c. May be either capitalized or expensed when incurred depending upon the materiality.
d. Must be expensed in the period incurred unless it can be clearly demonstrated that the
expenditure will have alternative future use or unless contractually reimbursable.
37. Which of the following would be considered research and development?
a. Routine effort to refine an existing product
b. Periodic alteration to existing production line
c. Marketing research to promote a new product
d. Construction of prototype
38. Which of the following costs should not be capitalized?
a. Acquisition cost of equipment to be used on current and future research projects.
b. Engineering cost incurred to advance the product to the full production stage.
c. Cost incurred to file for patent.
d. Cost
of
testing
prototype
before
economic
feasibility
has
been
demonstrated.
39. Which of the following costs should be excluded from research and development expense?
a. Modification of the design of a product.
b. Acquisition of research and development equipment for use on a current project only.
c. Cost of marketing research for a new product.
d. Engineering activity required to advance the design of a product to the manufacturing stage.
40. Which of the following should not be considered research and development activity?
a. Adaption of an existing capability to a particular requirement or customer need.
b. Application of research finding or other knowledge to a plan for a new product.
c. Laboratory research aimed at discovery of new knowledge.
d. Conceptual formulation and design of possible product alternative.
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PROBLEMS:
41. Queenie Company reported the following data at year-end:
Franchise
Computer software
Patent
Deferred charges
Bond sinking fund
Trademark
P 1,500,000
2,275,000.
1,750,000
350,000
1,200,000
3,000,000
What total amount should be reported as intangible assets?
a. 8,525,000
b. 10,075,000
c. 8,875,000
d. 9,725,000
Solution: A.
Franchise
P 1,500,000
Computer software
2,275,000.
Patent
1,750,000
Trademark
3,000,000
TOTAL
P 8,525,000
42. Yasmin Company paid P3,500,000 to purchase intangible assets with the following fair value:
Internet domain name
Order backlog
In-process research and development
Operating permit
P 1,000,000
750,000
1,250,000
1,000,000
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In addition, the entity spent P2,000,000 to run an advertising campaign to boost its image in the local
community.
What amount should be recognized as cost of the order backlog?
a. 875,000
b. 656,275
c. 750,000
d. 656,250
Solution: D.
Internet domain name (1,000,000/4,000,000) x 3,500,000
Order backlog (750,000/4,000,000) x 3,500,000
P875,000
656,250
In-process R & D (1,250,000/4,000,000) x 3,500,000
1,093,750
Operating permit (1,000,000/4,000,000) x 3,500,000
875,000
P 3,500,000
TOTAL
43. Sweet Company incurred P1,600,000 of research and development costs to develop a product for which a
patent was granted at the beginning of current year.
Legal fees and other costs associated with registration of the patent totaled P300,000. At the year-end, the
entity paid P450,000 for legal fees in a successful defense of the patent.
What is the total amount that should be capitalized for the patent at year-end?
a. 2,050,000
b. 2,350,000
c. 300,000
d. 750,000
Solution: C.
Legal fees and other costs associated with registration
P 300,000
44. Aynie Company acquired a patent for a drug with a remaining legal and useful life of six years on January
1, 2015 for P5,400,000. On January 1, 2017, a new patent is received for an improved version of the same
drug. The new patent has a legal and useful life of twenty years.
What is the amortization expense for 2017?
a. 300,000
b. 180,000
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c. 200,000
d. 900,000
Solution: B.
Cost – Jan. 1, 2015
U
P 5,400,000
Amortization for 2015 & 2016 (5.4M / 6 x 2)
(1,800,000)
Carrying amount – Jan. 1, 2017
P 3,600,000
Amortization for 2017 (3.6M / 20)
M
valuable, the entity had it patented.
P180,000
cause the machine is very
The following expenditures were incurred in developing and patenting the machine:
Purchase of special equipment to be used solely for development of the new machine
Drawings required by patent office to be filed with patent application
Cost of testing prototype
Fees paid to government patent office
Research salaries and fringe benefits for engineers
Legal cost for filing patent
45. What amount of research and development cost should be expensed in the current year?
a. 2,650,000
b. 2,750,000
c. 3,030,000
d. 2,330,000
Solution: A.
Purchase of special equipment
P 2,000,000
Research salaries and FB
350,000
Cost of testing prototype
300,000
TOTAL
P 2,650,000
46. What amount should be capitalized as cost of patent?
Solution: A.
Legal cost for filing patent
P 250,000
Fees paid to government patent office
100,000
Drawings required by patent office
30,000
TOTAL
P 380 000
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P 2,000,000
30,000
300,000
100,000
350,000
250,000
47. Bob Co. purchased a patent for P7,140,000 on January 1, 2014. The patent is being amortized over the
remaining legal life of 15 years expiring on January 2029.
During 2017, the entity determined that the economic benefits of the patent would not last longer than ten
years from the date of acquisition.
What is the carrying amount of patent on December 31, 2017?
a. 4,896,000
b. 5,236,000
c. 4,284,000
d. 5,050,000
Solution: A.
Cost - Jan. 1,2014
P 7,140,000
Amortization for 2014, 2015 & 2016 (7.140M / 15 x 3)
(1,428,000)
Carrying amount - Jan. 1, 2017
P 5,712,000
Amortization for 2017 (5.712M / 7)
(816,000)
Carrying amount - December 31, 2017
P 4,896,000
Revised life
10 years
Years expired – 2014, 2015 & 2016
(3)
Remaining revised life
7 years
48. Pengie Company incurred the following costs during the current year:
Routine on-going efforts to refine, enrich or otherwise improve an existing product
Design, construction and testing of preproduction models
Quality control during commercial productions including routine testing of products
Laboratory research for discovery of new knowledge
What total amount should be reported as research and development expense?
a. 235,000
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P 125,000
110,000
150,000
180,000
b. 275,000
c. 290,000
d. 330,000
Solution: C.
Design, construction and testing
Laboratory research
49. D
c TOTAL
110,000
180,000
P 290,000
ent year for P3,500,000. An independent
se was 70 years.
The unamortized cost of the franchise was P680,000. The entity decided to amortize the franchise over the
maximum period allowed.
What amount should be recorded as amortization of franchise for the current year?
a. 50,000
b. 50,800
c. 40,286
d. 17,000
Solution: A.
Amortization of franchise (3,500,000 / 70 years) P 50,000
50. Panpan Company acquired a trademark relating to the introduction of a new manufacturing process. The
entity incurred the following costs:
Cost of trademark
Employee benefits relating to testing of new process
Expenditure on promoting the new product
P 4,500,000
300,000
50,000
What total cost should be capitalized a intangible noncurrent asset in respect of the new process?
a. 4,750,000
b. 4,800,000
c. 4,250,000
d. 4,150,000
Solution: B.
Total cost (4,500,000 + 300,000)
P 4,800,000
51. Adelie Company incurred the following costs during the current year:
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Research and development services performed by Key Company for Adelie
P 100,000
Design, construction, and testing of preproduction prototypes
200,000
Testing in search for new products or process alternatives
250,000
What total amount should be reported as research and development expense?
a. 550,000
b. 300,000
c. 450,000
d. 100,000
Solution: A.
Research and development services performed by Taisan Company for Adelie
P 100,000
Design, construction, and testing of preproduction prototypes
200,000
Testing in search for new products or process alternatives
250,000
Research and development expense
P 550,000
52. Badelie Company incurred the following costs during the current year:
Design of tools, jigs, molds, and dies involving new technology
P 125,000
Modification of the formulation of a process
260,000
Trouble-shooting in connection with breakdowns during commercial
production
115,000
What total amount should be reported as research and development expense?
a. 500,000
b. 375,000
c. 285,000
d. 125,000
Solution: C.
Design of tools, jigs, molds, and dies
P 125,000
Modification of the formulation of a process
260,000
Research and development expense
P 285,000
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53. Dolphie Company made the following expenditures during the current year:
Costs to develop computer software for internal use in Dolphie's general
management information system
P 750,000
Cost of market research activities
250,000
What is the research and development expense?
a. 750,000
b. 250,000
c. 500,000
d. 1,000,000
Solution: B.
Cost of market research activities
P 250,000
Questions 54 - 56 are based on the following:
During the current year, Pengie Company incurred the following costs to develop and produce a computer
software product:
Packaging product
P 1,000,000
Completion of detailed program design
500,000
Costs incurred for coding and testing to establish technological feasibility
250,000
Costs of producing product masters for training materials
2,000,000
Duplication of computer software and training materials from product masters
140,000
Other coding costs after establishment of technological feasibility
200,000
Other testing costs after establishment of technological feasibility
300,000
54. What amount should be reported as inventory?
a. 1,000,000
b. 1,500,000
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c. 3,000,000
d. 1,140,000
Solution: D.
Packaging product
P 1,000,000
Duplication of computer software and training materials from product master
Inventory
140,000
P 1,140,000
55. What total amount of the costs incurred should be expensed immediately?
a. 750,000
b. 500,000
c.
1,500,000
d. 1,750,000
Solution: A.
Completion of detailed program design
P 500,000
Costs incurred for coding and testing to establish technological feasibility
Start-up costs to be expensed
250,000
P 750,000
56. What amount should be capitalized as software cost?
a.
b.
c.
d.
3,000,000
3,500,000
2,500,000
5,500,000
Solution: C.
Costs of producing product masters for training materials
P 2,000,000
Other coding costs after establishment of technological feasibility
200,000
Other testing costs after establishment of technological feasibility
300,000
Software cost
P 2,500,000
57. On January 1, 2017, Lasagna 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, 2024.
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During January 2019, two years after occupying the leased premises, the entity made general
improvements costing P7,200,000 and having a useful life of ten years.
On December 31, 2019, the entity's intention as to exercise of the renewal option is uncertain.
What is the depreciation of leasehold improvement for 2019?
a. 600,000
b. 1,200,000
c. 720,000
d. 1,440,000
Solution: B.
Depreciation (7,200,000 / 6)
P 1,200,000
58. Geller Company incurred the following costs in the current year:
Laboratory research aimed at discovery of new knowledge
P 250,000
Advertising expense to introduce a new product
1,000,000
Quality control during commercial production
600,000
What is the total amount of research and development expense?
a. 1,000,000
b. 1,850,000
c. 250,000
d. 600,000
Solution: C.
Laboratory research aimed at discovery of new knowledge
P 250,000
59. Green Company incurred the following costs during the current year:
Start-up costs incurred when opening a new plant
P 600,000
R and D equipment with useful life of four years in various R and D projects
Advertising expense to introduce a new product
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500,000
1,000,000
0
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 P1,000,000 on the tablet making it ready for use and sale
by the end of the year.
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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
P 2,000,000
Second quarter
500,000
Costs charged as expense
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
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47. Bob Co. purchased a patent for P7,140,000 on January 1, 2014. The patent is being amortized over
remaining legal life of 15 years expiring on January 2029.
During 2017, the entity determined that the economic benefits of the patent would not last longer than
years from the date of acquisition.
What is the carrying amount of patent on December 31, 2017?
a. 4,896,000
b. 5,236,000
c. 4,284,000
d. 5,050,000
Solution: A.
Cost - Jan. 1,2014
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P 7,140,000
Amortization for 2014, 2015 & 2016 (7.140M / 15 x 3)
Carrying amount - Jan. 1, 2017
(1,428,000)
P 5,712,000
Amortization for 2017 (5.712M / 7)
(816,000)
Carrying amount - December 31, 2017
P 4,896,000
Revised life
10 years
Years expired – 2014, 2015 & 2016
(3)
Remaining revised life
7 years
48. Pengie Company incurred the following costs during the current year:
Routine on-going efforts to refine, enrich or otherwise improve an existing product
Design, construction and testing of preproduction models
Quality control during commercial productions including routine testing of products
Laboratory research for discovery of new knowledge
What total amount should be reported as research and development expense?
a. 235,000
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P 125,000
110,000
150,000
180,000
b. 275,000
c. 290,000
d. 330,000
Solution: C.
Design, construction and testing
Laboratory research
49. D
c TOTAL
110,000
180,000
P 290,000
ent year for P3,500,000. An indepen
se was 70 years.
The unamortized cost of the franchise was P680,000. The entity decided to amortize the franchise over
maximum period allowed.
What amount should be recorded as amortization of franchise for the current year?
a. 50,000
b. 50,800
c. 40,286
d. 17,000
Solution: A.
Amortization of franchise (3,500,000 / 70 years) P 50,000
50. Panpan Company acquired a trademark relating to the introduction of a new manufacturing process.
entity incurred the following costs:
Cost of trademark
Employee benefits relating to testing of new process
Expenditure on promoting the new product
P 4,500,000
300,000
50,000
What total cost should be capitalized a intangible noncurrent asset in respect of the new process?
a. 4,750,000
b. 4,800,000
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c. 4,250,000
d. 4,150,000
Solution: B.
Total cost (4,500,000 + 300,000)
P 4,800,000
51. Adelie Company incurred the following costs during the current year:
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Research and development services performed
by
Design, construction, and testing of preproduction prototypes
P 100,000
200,000