Chapter 30 - Intangible Assets

Question 1

What is an intangible asset under IAS 38?

Answer 1

A non-monetary asset without physical substance that generates future value from rights and privileges, not physical form.

Question 2

Give examples of intangible assets.

Answer 2

Copyrights, patents, trademarks, software, licences, quotas, franchise rights, customer lists.

Question 3

What three criteria must an asset meet to qualify as intangible?

Answer 3

Identifiable (separable or from legal/contractual rights), Control over future benefits, Future economic benefits expected.

Question 4

Why does a bus route licence qualify as an intangible?

Answer 4

Arises from legal rights and provides future economic benefits.

Question 5

Why don’t recruitment or advertising costs qualify?

Answer 5

They lack control and identifiability.

Question 6

A company buys a customer list for $25 000. How is it treated?

Answer 6

Meets definition & recognition criteria. Journal entry: Dr Intangible Asset 25 000 Cr Cash/AP 25 000.

Question 7

When is an intangible recognized?

Answer 7

When: Probable future economic benefits will flow to the entity, and Cost can be measured reliably.

Question 8

How are separately acquired intangibles measured?

Answer 8

At cost (purchase price + directly attributable costs + non-refundable taxes + legal fees). Example: Trademark $5 000 + PST 350 + registration 300 + legal 400 = $6 050 capitalized.

Question 9

How are research costs treated?

Answer 9

Expensed immediately – too early to prove future benefits. Example: $40 000 exploring materials → research → expense.

Question 10

How about a $30 000 testing machine?

Answer 10

PPE, not intangible — physical, reusable asset.

Question 11

When can development costs be capitalized?

Answer 11

Only if all six IAS 38.57 criteria are met: Technical feasibility, Intention to complete, Ability to use/sell, Probable future benefits, Resources available, Reliable cost measurement.

Question 12

What types of costs can be capitalized during development?

Answer 12

Prototypes, pilot plants, design/testing, direct materials/labour, registration fees, amortization of related rights.

Question 13

List examples of costs that cannot be capitalized (even in development).

Answer 13

Selling/admin overhead, inefficiencies, training, start-up, advertising, relocation, reorganization, pre-criteria costs.

Question 14

How are intangibles recognized in a business combination?

Answer 14

Recorded at fair value at acquisition date. Recognized separately from goodwill. Probability & measurement assumptions automatically met.

Question 15

When is goodwill recognized?

Answer 15

Only when acquired in a business combination. Internally generated goodwill → never recognized.

Question 16

How are intangibles received via government grants recorded?

Answer 16

At fair value, with grant recognized; or At nominal value + prep costs if FV not determinable.

Question 17

How are exchanged intangibles measured?

Answer 17

At fair value of asset given up or received (whichever is more reliable). If no commercial substance or FV not reliable → use carrying value.

Question 18

What’s the difference between finite and indefinite-life intangibles?

Answer 18

Finite → amortized over useful life. Indefinite → not amortized; tested for impairment annually.

Question 19

What are IAS 38’s two models?

Answer 19

Cost Model, Revaluation Model (only if active market exists).

Question 20

When can the revaluation model be used?

Answer 20

Only if a reliable active market exists (rare — e.g., taxi licences, milk quotas).

Question 21

How are assets measured under the cost model?

Answer 21

Cost – accumulated amortization – impairment losses. Residual value: Assumed zero unless third-party purchase commitment or active market exists.

Question 22

When is an intangible asset impaired?

Answer 22

When carrying amount > recoverable amount (IAS 36). Indefinite-life intangibles → test annually.

Question 23

When is an intangible derecognized?

Answer 23

Upon disposal or when no future benefits expected. Gain/loss = Proceeds – Carrying amount.

Question 24

What must be disclosed for intangible assets?

Answer 24

Useful life (finite / indefinite), Amortization method & period, Gross & accumulated amounts (start & end), Reconciliation of movements, Indefinite-life justification, Total R&D expensed, Internally generated vs acquired breakdown.

Question 25

Which standards govern intangible assets?

Answer 25

IFRS → IAS 38 Intangible Assets, ASPE → Section 3064 Goodwill and Intangible Assets.

Question 26

How do IFRS and ASPE differ for development costs?

Answer 26

IFRS → Must capitalize if criteria met. ASPE → Policy choice to capitalize or expense; must apply consistently.

Question 27

How do the standards differ for government-granted intangibles?

Answer 27

IFRS → Specific guidance. ASPE → No specific guidance.

Question 28

How does ASPE handle cloud-computing costs?

Answer 28

Simplification approach: expense all costs, or Alternative approach: capitalize only those meeting intangible definition; apply choice consistently.

Question 29

Identify treatment under ASPE for each: Patented invention ($370 000):

Answer 29

No market → expense.

Question 30

Identify treatment under ASPE for each: Purchased patent ($210 000):

Answer 30

Capitalize.

Question 31

Identify treatment under ASPE for each: Amaze brand from acquisition ($1.25 M):

Answer 31

Capitalize.

Question 32

Identify treatment under ASPE for each: Training ($125 000):

Answer 32

Expense.

Question 33

Identify treatment under ASPE for each: Purchased brand “Kool Karma” ($1.6 M):

Answer 33

Capitalize.

Question 34

Identify treatment under ASPE for each: Internal brand “Astonish!” ($1 M):

Answer 34

Expense.