Intangible assets

Question 1

What is an intangible asset?

Answer 1

• is an identifiable non-monetary asset without physical substance

Question 2

What item are included in intangible assets?

Answer 2

• licences and quotas

Question 3

What item are included in intangible assets?

Answer 3

• licences and quotas
• intellectual property, e.g. patents and copyrights
• brand names
• trademarks

Question 4

IAS 38 Intangible Assets conditions to be identifiable

Answer 4

• it is separable
• it arises from legal/contractual rights
  normal conditions:
• controlled by the entity as a result of past events
• a resource from which future economic benefits are expected to flow

Question 5

Recognition of intangible asset in financial statements

Answer 5

• the definition of an intangible asset
• meet the recognition criteria: - it is probable that future economic benefits attributable to the asset will flow to the entity
• the cost of the asset can be measured reliably

Question 6

Measurement of intangible asset after initial recognition

Answer 6

• cost model
• the revaluation model

Question 7

The cost model

Answer 7

• more commonly used in practice
• the intangible asset should be carried at cost less amortisation and any impairment losses

Question 8

Intangible asset with an indefinite useful life

Answer 8

• should not be amortised
• should be tested for impairment annually, more often if there is an actual indication of possible impairment

Question 9

The revaluation model

Answer 9

• the intangible asset may be revalued to a carrying amount of fair value less subsequent amortisation and impairment losses
• fair value should be determined by reference to an active market

Question 10

What is an active market?

Answer 10

• market in which transactions for the asset take place with sufficient frequence and volume to provide pricing information on an ongoing basis

Question 11

Indicators of an active market

Answer 11

• the items traded within the market are homogeneous ( identical)
• prices are available to the public

Question 12

What can’t be recognised in internally-generated

Answer 12

• goodwill ( inherent goodwill)
• brands
• mastheads
• publishing titles
• customer lists

Question 13

What is a goodwill?

Answer 13

• is the difference between the value of a business as a whole and the aggregate of the fair values of its separable net assets

Question 14

What are separable net assets?

Answer 14

• are those assets and liabilities which can be identified and sold off separately without necessarily disposing of the business as a whole
• they include identifiable intangible assets such as patents, licences and trademarks

Question 15

What is the fair value?

Answer 15

• the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

Question 16

Goodwill may exist because of:

Answer 16

• reputation for quality or service
• technical expertise
• possession of favourable contracts
• good management and staff

Question 17

Purchased goodwill

Answer 17

• arises when one business acquires another as a going concern
• includes goodwill arising on the consolidation of a subsidiary
• will be recognised in the financial statements as its value at a particular point in time is certain

Question 18

Non-purchased goodwill

Answer 18

• is also known as inherent goodwill
• has no identifiable value
• is not recognised in the financial statements

Question 19

Definition of goodwill by IFRS3

Answer 19

• an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognised

Question 20

What is research?

Answer 20

• is original and planned investigation undertaken with the prospect of gaining new scientific knowledge and understanding

Question 21

What is development?

Answer 21

• is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use

Question 22

Research expenditure - accounting treatment

Answer 22

• write off as incurred to the statement of profit or loses

Question 23

Development expenditure - accounting treatment

Answer 23

• recognise as an intangible asset only under conditions:
• Probable flow of economic benefit from the asset, whether through sale or internal cost savings
• Intention to complete the intangible asset and use or sell it
• Reliable measure of development cost
• Adequate resources to complete the project
• Technical feasibility of completing the intangible asset so that it will be available for use or sale
• Expected to be profitable, i.e. the costs of the project will be exceeded by the benefits generated

Question 24

Development criteria, TRUMP CV

Answer 24

Technically feasible
Resources to complete
Sell/use
Measure cost reliably (expense)
Probable future economic benefits (overall)
Commercially viable