CHAPTER 20

PAS 38 – INTANGIBLE ASSETS

Objective and scope
1. Which of the following may PAS 38 be applied to?
a. goodwill acquired in a business combination
b. rights arising from exploration and evaluation assets
c. computer software held for sale in the ordinary course of business
d. leasehold improvements
e. web site costs

2. PAS 38 does not apply to all of the following, except

a. receivables without physical substance
b. intangible assets classified as assets held for sale
c. insurer’s contractual rights under insurance contracts
d. assets arising from employee benefits
e. right to utilize another entity’s business concept

3. It is an identifiable non-monetary asset without physical substance.

a. intangible asset c. ghost asset
b. financial asset d. dream asset

4. PAS 38 states that an asset meets the identifiability criterion in the

definition of an intangible asset when it:
I. is separable, i.e., capable of being separated or divided from the entity
and sold, transferred, licensed, rented or exchanged, either individually
or together with a related contract, asset or liability
II. arises from contractual or other legal rights, regardless of whether those
rights are transferable or separable from the entity or from other rights
and obligations.
a. I b. II c. I or II d. none

5. All of the following are essential characteristics of an intangible asset,

except
a. Identifiability c. Future economic benefits
b. Control d. Subject to amortization

6. Which of the following is one of the essential characteristics of an

intangible asset?
a. used in business c. identifiable
b. subject to amortization d. monetary

7. The definition of an intangible asset

a. requires an intangible asset to be used in business
b. requires an intangible asset to provide future economic benefits
through increased revenues
c. requires an intangible asset to be identifiable to distinguish it from
goodwill.
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PAS 38 – INTANGIBLE ASSETS
d. requires an intangible asset to be without physical substance, whether
the asset is monetary or not.

8. An asset that cannot be sold, transferred, licensed, rented, or exchanged

separately is called
a. goodwill c. unidentifiable
b. intangible d. no such thing

9. Which of the following items may qualify for recognition as intangible

asset?
a. Market and technical knowledge
b. Employees’ skills developed from training
c. Specific managerial or technical talent
d. Market share and customer loyalty
e. None of these

10. Future economic benefits from an intangible asset may be obtained in

various ways which include
a. restricting others from the use of the asset
b. enjoyment of legal enforceability
c. reduced operating costs
d. separability through transferable right

11. Which of the following is not true regarding control over an intangible
asset?
a. An entity controls an asset if the entity has the power to obtain the future
economic benefits flowing from the underlying resource and to restrict
the access of others to those benefits.
b. The capacity of an entity to control the future economic benefits from an
intangible asset would normally stem from legal rights that are
enforceable in a court of law. In the absence of legal rights, it is more
difficult to demonstrate control.
c. Legal enforceability of a right is a necessary condition for control
because without it an entity cannot be able to control the future
economic benefits from the asset.
d. Control may be acquired from contractual rights such as rights arising
from franchises and non-competition agreements.

12. Regarding an asset that contains both intangible and tangible

components, which of the following statements is incorrect?
a. the entity uses its judgment on how to classify the asset
b. the asset is classified as property, plant and equipment if the
intangible component forms an integral part of the tangible asset
c. the entire asset is classified as property, plant and equipment if the
intangible component is necessary for the tangible asset to operate
d. the entire asset is classified as intangible asset if the tangible
component is necessary for the intangible asset to operate.

13. Which item listed below does not qualify as an intangible asset?
a. Computer software. c. Copyrights that are protected.
b. Registered patent. d. Notebook computer.
(Adapted)

Financial statement presentation

14. The line item intangible asset presented on the face of the statement of
financial position normally includes which of the following items?
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PAS 38 – INTANGIBLE ASSETS
a. goodwill
b. leasehold improvements
c. operating software costs
d. significant application software costs
e. all of these

15. Which of the following is not an acceptable financial statement

presentation for intangible assets?
a. Intangible assets accounted for under PAS 38 shall be presented
separately from Goodwill.
b. Intangible assets accounted for under PAS 38 are aggregated and
presented as one line item under the heading “Intangible assets” or
“Other intangible assets” in the statement of financial position. The
breakdown of the line item is disclosed in the notes.
c. Goodwill is presented separately in a statement of financial position
under a line item described as “Goodwill.”
d. Goodwill is aggregated with other intangible assets and the breakdown
is provided in the notes.

Recognition
16. An intangible asset shall be recognized if management can
demonstrate that:
I. the item meets the definition of intangible asset
II. it is probable that the expected future economic benefits will flow to
the entity
III. the cost of the asset can be measured reliably.
IV. the entity becomes a party to the contractual provisions of the
intangible asset
V. the fair value of the intangible asset can be reliably determined
a. I, II, III b. I, II, III, IVc. I, II, III, IV, V d. I, II, V

17. At initial recognition, an intangible asset shall be measured

a. at cost c. at fair value plus direct acquisition costs
b. at fair value d. any of these

18. Measurement of cost depends on how the intangible asset is acquired.

Intangible assets may be acquired through:
I. Separate acquisition
II. Acquisition as part of a business combination
III. Acquisition by way of a government grant
IV. Exchanges of assets
V. Internal generation
a. I, II, III, IV b. I, V c. I only d. any of these

19. When an intangible asset is separately acquired through purchase,

which of the following is incorrect?
a. trade discounts and rebates are deducted from the purchase price
whether taken or not
b. any directly attributable cost of preparing the asset for its intended use
forms part of initial cost
c. if settlement is deferred, the intangible asset is recognized at its cash
price equivalent, any difference between this amount and future
payments is recognized as interest expense
d. trade discounts and rebates are deducted from the purchase price only
when taken
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PAS 38 – INTANGIBLE ASSETS
20. MYTHICAL Co. acquired an intangible asset from IMAGINARY Co. during
the year. Which of the following costs incurred by Mythical should not be
included as initial cost of the intangible asset purchased?
a. fees of Mr. Programmer in installing the software purchased
b. fees of Mr. Auditor in auditing the system prior to closing the purchase
contract
c. costs of testing the new system whether it is functioning properly
d. advertising costs for the new product that will be produced using the
newly acquired software

21. SPLICE Co. acquired an intangible asset from 2UNITE Co. during the year.
Which of the following costs should be included as initial cost of the intangible
asset purchased?
a. costs of training Mrs. Old Baket, the designated employee to operate
the newly acquired asset
b. allocation of administration and other general overhead costs
c. rebates on the invoice price not taken
d. non-refundable sales taxes paid on the purchase

22. SVELTE Co. acquired an intangible asset from SLENDER Co. during the
year. All of the following costs incurred by Svelte related to the newly
acquired asset should be expensed immediately, except
a. initial operating losses incurred while demand for the asset’s output
builds up
b. modifications to the intangible asset after it was put to the operating
condition originally intended by Svelte
c. costs incurred while the asset capable of operating in the manner
intended by management has yet to be brought into use
d. salvage proceeds from samples produced during testing

23. The cost of intangible asset acquired in a business combination is its

a. fair value at the acquisition date
b. purchase cost
c. lower of cost or fair value
d. fair value less costs to sell at acquisition date

24. Which of the following provides the most reliable estimate of the fair
value of an intangible asset?
a. quoted market price in an active market
b. price in a binding sale agreement
c. present value of future cash flows
d. any of these

25. If no active market exists for an intangible asset, which of the following
is true?
I. its fair value is the amount that the entity would have paid for the asset,
at the acquisition date, in an arm’s length transaction between
knowledgeable and willing parties, on the basis of the best information
available.
II. Its fair value may be determined by discounting estimated future net
cash flows from the asset
a. True, true b. True, false c. False, true d. False, false

26. Intangible assets acquired by way of government grant may be initially

recognized at
a. fair value b. nominal amount c. zero d. any of these
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PAS 38 – INTANGIBLE ASSETS
27. During the year, ENDEAVOR Co. received an intangible asset from
2TRY Co. in an exchange transaction with commercial substance. Which
of the following statements is true?
a. Endeavor measures the intangible asset received at the fair value of the
intangible asset given up minus cash paid
b. Endeavor recognizes gain or loss on the exchange for the difference
between the fair value of the asset received and the carrying amount of
the asset received
c. If Endeavor cannot determine the fair value of the asset received, it shall
measure the intangible asset received using the fair value of the
intangible asset given up.
d. Endeavor recognizes gain or loss on the exchange for the difference
between the fair value of the asset given up and the carrying amou nt of
the asset given up, regardless of whether cash is received or paid

28. During the year, ZENITH Co. received an intangible asset from
HIGHEST POINT Co. in an exchange transaction that lacks commercial
substance. Which of the following statements is incorrect?
a. Zenith should measure the asset received at the carrying amount of the
asset given up
b. Zenith should not recognize any gain or loss on the sale unless cash is
paid on the exchange
c. Zenith should measure the asset received at an amount equal to the
difference between the initial cost of the asset given up and its related
accumulated amortization
d. Zenith should not recognize any gain or loss on the sale rega rdless of
whether cash is received or paid.

29. To assess whether an internally generated intangible asset meets the

criteria for recognition, an entity classifies the generation of the asset into
research phase and development phase. Which of the following statements
is true?
a. If an entity cannot distinguish the research phase from the development
phase, the entity treats expenditures as if they were incurred in the
development phase only.
b. Expenditures incurred in the research phase shall be recognized as
expense when incurred.
c. An intangible asset may be recognized for expenditures incurred in
research phase.
d. An in-process research and development (R&D) project acquired as
part of a business combination is expensed if a component is research.

30. Which of the following transactions may not give rise to recognition of
an intangible asset?
a. HEARTY Co. acquired SINCERE Co. in a business combination. Among
the items acquired is an R&D project composed mainly of expenditures
incurred by Sincere in research phase.
b. Expenditures incurred in development phase that meet all of the
conditions for recognition as intangible asset
c. Expenditures incurred in research phase for an invention that is highly
viable
d. Registration and legal fees for a patent filed with the IPO.

31. Which of the following is included in research and development expense

for a period?
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PAS 38 – INTANGIBLE ASSETS
a. The total cost of a building with useful life of 25 years acquired during
the year to be used in various research and development projects
b. Depreciation on a building used for research and development
c. The cost incurred during the year to ensure quality control for existing
production processes
d. The cost incurred during the year for research activities performed for
another entity.
(Adapted)

32. Intangible assets have all of the following characteristics, except:

a. their ownership confers rights, but no physical substance.
b. they have no physical substance.
c. they are relatively long-lived.
d. they provide benefits to current operations only.
(AICPA)

33. Which of the following statements is correct?

a. Some intangible assets convey exclusive rights which are represented
only by tangible physical substance.
b. Intangible assets used in the operation of a business are always long
term.
c. The process of recording the expiration of the economic benefits of an
intangible asset is called depletion.
d. Intangible assets are obtained in two ways: acquisition from an
external source or internally developed.
(AICPA)

34. Which of the following statements is true?

a. The only cost of an internally developed patent that should be
capitalized as patent cost are legal fees and other registration costs.
b. An identifiable tangible asset developed internally is never recognized
in the accounts as an asset.
c. Intangible assets usually have a residual value that must be
considered in the amortization of cost.
d. An intangible asset is usually amortized by a credit to an income
account.
(Adapted)

35. For some purposes, assets are classified as identifiable and

unidentifiable. Which of the following is an unidentifiable asset?
a. cash in bank c. goodwill
b. patent d. prepaid insurance
(Adapted)

36. Goodwill should properly appear on the financial statements of an

entity which:
a. has purchased another entity
b. consistently operates profitably
c. consistently reports above-normal profits
d. meets all of the conditions regarding legal goodwill.
(AICPA)

37. Costs incurred by a company that developed its own goodwill internally
should be :
a. capitalized and amortized as the company profits increased.
b. capitalized and amortized over the useful life of the goodwill.
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PAS 38 – INTANGIBLE ASSETS
c. expensed when incurred as a current operating expense.
d. capitalized and amortized over a period not to exceed 40 years.
(AICPA)

38. According to PAS 38 Intangible assets, the recognition criteria for an

intangible asset include which of the following conditions?
a. It must be measured at cost
b. Its cost can be measured reliably
c. It is probable that future economic benefits will arise from its use
d. It is an integral part of the business
e. b and c
(ACCA)

39. Which of the following items qualify as an intangible asset under PAS
38?
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
company.
c. Operating losses during the initial stages of the project.
d. Legal costs paid to intellectual property lawyers to register a patent.
(Adapted)

40. Which of the following assets typically are amortized?

Patents Trademarks
a. No No
b. Yes Yes
c. No Yes
d. Yes No
(AICPA)

41. The creative chief executive of a corporation who is personally

responsible for numerous inventions and innovations is not reported as an
asset on the corporation's statement of financial position. The accounting
principle/guideline that prevents the corporation for reporting this person
as an asset is
a. Conservatism b. Cost c. Going concern d. Materiality
(AICPA)

42. What is the proper time or time period over which to match the cost of
an intangible asset with revenues if it is likely that the benefit of the asset
will last for an indefinite period?
a. Forty years
b. Fifty years
c. Immediately
d. At such time as reduction in value can be quantitatively determined.
(AICPA)

43. Which of the following expenditures qualifies for asset capitalization?

a. Cost of materials used in prototype testing
b. Costs of testing a prototype and modifying its design
c. Salaries of engineering staff developing a new product
d. Legal costs associated with obtaining a patent on a new product
(AICPA)

44. Which of the following statements is correct concerning start-up costs?

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PAS 38 – INTANGIBLE ASSETS
a. Costs of start-up activities, including organization costs, should be
expensed as incurred.
b. Costs of start-up activities, including organization costs, should be
capitalized and expensed only if an impairment exists.
c. Costs of start-up activities, including organization costs, should be
capitalized and amortized on a straight-line basis over the lesser of the
estimated economic life of the company, or 60 months.
d. Costs of start-up activities should be capitalized and amortized on a
straight-line basis over the lesser of the estimated economic life of the
company, or 60 months, while organization cost should be expensed as
incurred.
(AICPA)

45. Which of the following incorrectly relate(s) to accounting for long-lived

assets?
I. Goodwill arising from a consolidation which appears among the assets
on the consolidated balance sheet of a parent company and its only
subsidiary shows that the subsidiary was acquired at a price that was
less than the underlying book value of its tangible assets.
II. Provisions for renewal or extension may alter a specified limit on useful
life of intangible assets thus affecting the amortization amount.
III. Amortization policy on intangible assets should be continually evaluated
to determine whether later events and circumstances necessitate
revision of estimates of useful lives.
IV. Costs to develop a product or process to be patented may form part of
the costs of patents.
V. To be consistent, amortization policy of intangible assets should not be
evaluated often even if later events and circumstances warrant revised
estimates of useful lives.
a. IV, V b. II, III c. II, III, IV d. I, IV, V

46. Goodwill arising from a business combination should:

a.be expensed in the year of acquisition
b.be amortized over its economic life
c.not be amortized but tested for impairment at least annually
d.be written off after (40) years or (20) years depending on the GAAP
adopted
(AICPA)

47. Accounting for intangible assets involves the same kind of problem as
accounting for other long-lived assets, such as:
a. accounting after acquisition (amortization)
b. accounting if the values decline substantially & permanently
c. determining an initial carrying amount
d. all of these
(AICPA)

48. Improvements to leased facilities are included under property, plant

and equipment if:
Material in amount Terms extend over long
period
a. no yes
b. yes no
c. no no
d. yes yes
(AICPA)
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PAS 38 – INTANGIBLE ASSETS
49. Which of the following is not a required characteristics for an item to
be classified as an intangible asset?
a. lack of physical substance
b. ownership confers some exclusive right, privilege or competitive
advantage
c. estimated life should not exceed forty years
d. provide future benefits by enhancing revenues or reducing costs
(AICPA)

50. The following statements relate to intangible assets:

I. All intangible assets have no physical existence, but not all assets
having no physical existence are intangible assets.
II. Under current accounting practice, intangible assets are classified into
those with finite useful lives such as patents and those with indefinite
useful lives such as trademark.
III. Research and development costs must be expended for financial
reporting purposes in the year in which the costs are incurred even
though the costs may provide benefits to future periods.
IV. Only when intangible assets are acquired from other entities can they
be recognized as assets.

State whether the foregoing statements are false.

a. All the statements are false. c. Only two statements are false.
b. Only one statement is false. d. Three statements are false.

51. Costs incurred internally to create intangibles are

a. capitalized.
b. capitalized if they have an indefinite life.
c. generally expensed as incurred.
d. expensed only if they have a limited life.
(AICPA)

52. The cost of an intangible asset includes all of the following except
a. purchase price. c. other incidental expenses.
b. legal fees. d. all of these
(AICPA)

53. Are the following statements true or false, according to PAS 38

Intangible assets?
1) The cost of an asset should include the amount of any cash or cash
equivalents paid to acquire the asset.
2) The cost of an asset should include non-cash consideration measured
at fair value.
a. False False b. False True c. True False d. True True
(ACCA)

Subsequent measurement
54. Subsequent to initial recognition, an intangible asset may be measured
using
a. cost model or revaluation model c. cost model only
b. cost model or fair value model d. either a or b

55. The revaluation model may be used for an intangible asset

a. which has an active market
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PAS 38 – INTANGIBLE ASSETS
b. whose fair value can be determined reliably through a valuation
technique such as discounted future cash flows
c. which has an active market and a residual value
d. the revaluation model is applicable only to items of PPE but not to
intangible assets

56. Which of the following factors should not be considered in determining

the useful life of an intangible asset?
a. Legal, regulatory, or contractual provisions.
b. Expected action of competitors.
c. Provisions for renewal or extension of life.
d. Initial cost
(AICPA)

57. Which of the following is not considered in estimating the useful life of
intangible assets?
a. effects of obsolescence, demand and competition
b. the salvage value of the asset
c. the service life expectancies of individuals or groups of employees
d. expected actions of competitors
(AICPA)

58. Factors considered in determining an intangible asset’s useful life

include all of the following except
a. the expected use of the asset.
b. any legal or contractual provisions that may limit the useful life.
c. any provisions for renewal or extension of the asset’s legal life
d. the amortization method used.
(AICPA)

59. Amortization of intangible assets results primarily from the application

of the:
a. matching principle c. cost principle
b. full-disclosure d. revenue principle
(Adapted)

60. Once recognized, intangible assets can be carried at

a. Cost less accumulated amortization.
b. Cost less accumulated amortization and less accumulated impairment
losses.
c. Revalued amount without deduction for accumulated amortization.
d. Cost plus a notional increase in fair value since the intangible asset is
acquired.
(Adapted)

61. Amortization of an intangible asset is usually recorded as a:

a. debit to retained earnings and a credit to a contra account.
b. debit to retained earnings and a credit to the intangible asset account.
c. debit to retained earnings and a credit to a contra account.
d. debit to amortization expense and a credit to a contra account.
(AICPA)

62. Which of the following methods of cost allocation cannot be used for
intangible assets?
a. Declining balance c. Units of production
b. Revenue method d. Effective interest method
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PAS 38 – INTANGIBLE ASSETS
63. Which of the following methods of cost allocation can be used for
intangible assets?
a. straight line c. units-of-production
b. revenue method d. any of these

64. Under PAS 38, the default cost allocation method for intangible assets
is?
a. revenue method c. SYD
b. straight line d. no default method

65. JOCUND Co. has an intangible asset, which it estimates will have a
useful life of 10 years, while MERRY Co. has goodwill, which has an
indefinite life. Which company should report amortization in its financial
statements?
JOCUND MERRY JOCUND MERRY
a. Yes Yes c. No Yes
b. Yes No d. No No
(AICPA)

66. According to PAS 38 Intangible assets, which of the following criteria

are relevant in determining the useful life of an intangible asset?
a. obsolescence d. residual value
b. amortization period e. a and c
c. expected usage
(ACCA)

67. According to PAS 38, the residual value of an intangible asset is

presumed
a. equal to fair value in active market
b. equal to the amount the third party wants to buy
c. equal to a conservative estimation
d. zero

68. In accordance with generally accepted accounting principles, which of

the following methods of amortization is normally recommended for
intangible assets?
a. SYD c. units of production
b. straight-line d. double declining balance
(AICPA)

69. On January 1, 20x1, an intangible asset with a thirty-five year estimated

useful life was acquired. On January 1, 20x6, a review was made of the
estimated useful life and it was determined that the intangible asset had
an estimated useful life of forty-five more years. As a result of the review
a. The original cost at January 1, 20x6 should be amortized over a fifty-
year life.
b. The original cost at January 1, 20x1 should be amortized over the
remaining thirty-year life.
c. The unamortized cost at January 1, 20x6 should be amortized over a
forty-year life.
d. The unamortized cost at January 1, 20x6 should be amortized over a
thirty-five year life.
(AICPA)
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PAS 38 – INTANGIBLE ASSETS
70. A brand name that was acquired separately should initially be
recognized, according to PAS 38 Intangible assets, at
a. recoverable amount c. fair value
b. either cost or fair value at the choice of the acquirer d. cost
(ACCA)

71. Which of the following should be expensed as incurred on a franchise

with an estimated useful life of ten years?
a. Amount paid to the franchisor for the franchise.
b. Periodic payments to a company, other than the franchisor, for that
company’s franchise.
c. Legal fees paid to the franchisee’s lawyers to obtain the franchise.
d. Periodic payments to the franchisor based on the franchisee’s
revenues.
(AICPA)

72. Are the following statements true or false, according to PAS 38

Intangible assets?
1) Intangible assets acquired in a business combination should only be
recognized if they have already been recognized by the entity being
acquired.
2) Intangible assets acquired in a business combination should not be
recognized separately from goodwill.
a. False False b. False True c. True False d. True True (ACCA)

73. A change in the amortization method or amortization rate for an

intangible asset is accounted for:
a. prospectively b. retrospectively c. currently d.
gracefully

74. Which of the following factors influence(s) the Brand strength of a

company?
I. Customer loyalty
II. Statutory protection
III. Brand Management by the company
a. I, II b. I c. II d. I, II, III

75. Which of the following is not specifically an identifiable intangible

asset?
a. Kina Rogers franchise c. secret formula for a Krabby Patty
b. secret processes d. goodwill

76. Are the following statements true or false, according to PAS 38

Intangible assets?
1) Intangible assets cannot be treated as having an indefinite useful life.
2) Intangible assets with a finite useful life should be measured at cost
and tested annually for impairment.
a. False False b. False True c. True False d. True
True
(ACCA)

77. According to PAS 38 Intangible assets, amortization of an intangible

asset with a finite useful life should commence when
a. it is first recognized as an asset
b.
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PAS 38 – INTANGIBLE ASSETS
c. it is probable that it will generate future economic benefits
d. the costs can be identified with reasonable certainty
(ACCA)

78. Are each of the following factors relevant, according to PAS 38

Intangible assets, in determining the annual amortization expense on an
intangible asset?
I. The cost.
II. The amortization method.
a. Not relevant, Not relevant c. Relevant, Not relevant
b. Not relevant, Relevant d. Relevant, Relevant
(ACCA)

79. Which of the following is not a long-term investment?

a. shares held to exert influence on another entity
b. land held for speculation
c. trademarks
d. cash surrender value of life insurance
(Adapted)

80. Which of the following would not be included in research and

development expense for APATHETIC Co. for current period?
a. The portion of plant assets, devoted completely to research for
APATHETIC, which is amortized in the current period.
b. The cost of materials used in conducting research for APATHETIC
during the current period.
c. Cash paid by APATHETIC to INDIFFERENT Co. for research performed
by INDIFFERENT Co. for APATHETIC in the current period.
d. The cost of labor incurred by APATHETIC in conducting research for
UNCONCERNED Co. during the current period.
(Adapted)

81. Which of these statements about research and development

expenditure are correct?
1. If certain conditions are satisfied, research and development
expenditure must be capitalized.
2. One of the conditions to be satisfied if development expenditure is to be
capitalized is that the technical feasibility of the project is reasonably
assured.
3. If capitalized, development expenditure must be amortized over a
period not exceeding five years.
4. The amount of capitalized development expenditure for each project
should be reviewed each year. If circumstances no longer justify the
capitalization, the balance should be written off over a period not
exceeding five years.
5. Development expenditure may only be capitalized if it can be shown that
adequate resources will be available to finance the completion of the
project and all other conditions are also met.
a. 2 and 5 b. 3, 4 and 5 c. 2, 3 and 5 d. 1, 2 and 3
(Adapted)

82. Which of the following is a true statement concerning research and

development (R&D) costs?
a. All R&D costs, without exception, must be charged to expense when
incurred.
b. R&D costs can only be amortized over a life of 40 years or more.
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PAS 38 – INTANGIBLE ASSETS
c. Almost any treatment is acceptable for handling R&D costs.
d. Financial statements must disclose total R&D costs charged to expense
in the period
(Adapted)

83. Total research and development expense for CUNNING, Inc. would
include which of the following items:
I. Depreciation on CUNNING, Inc. property, plant and equipment used in
CUNNING, Inc.'s development projects
II. Amortization of CUNNING, Inc. patents used in CUNNING, Inc.'s
research
III. Resources paid by CUNNING, Inc. for SLY Co.'s research efforts
performed for CUNNING, Inc. research and development projects
IV. CUNNING, Inc. cost of research performed for CLEVER Corporation's
research and development projects
V. CUNNING, Inc. costs of internal development efforts which culminated
in a patent granted to CUNNING, Inc.
VI. Overhead costs allocated to CUNNING Inc.’s research and development
efforts which took the place of another CUNNING, Inc. activities
VII. Costs to train CUNNING, Inc. employees to run machines used in
ongoing production. These machines had earlier been develope d by
CUNNING, Inc.
a. I, II, III b. I, II, III, IV, V c. I, II, III, V, VI d. all of these
(Adapted)

84. A newly set up dot-com entity has engaged you as its financial advisor.
The entity has recently completed one of its highly publicized research and
development projects and seeks your advice on the accuracy of the
following statements made by one of its stakeholders. Which one is it?
a. Costs incurred during the “research phase” can be capitalized.
b. Costs incurred during the “development phase” can be capitalized if
criteria such as technical feasibility of the project being established are
met.
c. Training costs of technicians used in research can be capitalized.
d. Designing of jigs and tools qualify as research activities.
(Adapted)

85. Which of the following is an example of activities that would typically

be excluded in research and development costs?
a. Design, construction, and testing of preproduction prototypes and
modes.
b. Laboratory research aimed at discovery of new knowledge.
c. Quality control during commercial production, including routine testing
of products.
d. Testing in search for, or evaluation of, product or process alternatives.
(AICPA)

86. Which of the following is a research and development cost?

a. Development or improvement of techniques and processes.
b. Offshore oil exploration that is the primary activity of a company.
c. Research and development performed under contract for others.
d. Market research related to a major product for the company.
(AICPA)

87. HEARTY Company and WARM-SINCERE Company were combined in a

purchase transaction. HEARTY was able to acquire WARM-SINCERE at a
 CHAPTER 20
PAS 38 – INTANGIBLE ASSETS
bargain price. The sum of the market or appraised values of identifiable
assets acquired less the fair value of liabilities assumed exceeded the cost
to HEARTY. After revaluing noncurrent assets to zero, there was still some
"negative goodwill." Proper accounting treatment by HEARTY is to report
the amount as
a. an extraordinary gain.
b. part of current income in the year of combination.
c. a deferred credit and amortize it.
d. paid-in capital.
(AICPA)

88. Goodwill may be

a. capitalized only when purchased.
b. capitalized either when purchased or created internally.
c. capitalized only when created internally.
d. written off directly to retained earnings.
(AICPA)

89. Which of the following research and development related costs should
be capitalized and amortized over current and future periods ?
a. Research and development general laboratory building which can be
put to alternative uses in the future
b. Inventory used for a specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another company to aid a particular
research project currently in process
(AICPA)

90. Which of the following principles best describes the current method of
accounting for research and development costs?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense
(AICPA)

91. How should research and development costs be accounted for,

according to PAS 38?
a. Must be capitalized when incurred and then amortized over their
estimated useful lives.
b. Must be expensed in the period incurred.
c. May be either capitalized or expensed when incurred, depending upon
the materiality of the amounts involved.
d. Must be expensed in the period incurred unless development costs
incurred qualify under the recognition criteria set forth under PAS 38.

92. Which of the following costs should be excluded from research and
development expense?
a. Modification of the design of a product
b. Acquisition of R & D 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
(AICPA)
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93. If a company constructs a laboratory building to be used as a research
and development facility, the cost of the laboratory building is matched
against earnings as
a. research and development expense in the period(s) of construction.
b. depreciation deducted as part of research and development costs.
c. depreciation or immediate write-off depending on company policy.
d. an expense at such time as productive research and development has
been obtained from the facility.
(AICPA)

94. What is the proper time or time period over which to match the cost of
an intangible asset with revenues if it is likely that the benefit of the asset
will last for a determinate but very long period of time?
a. Forty years.
b. Fifty years.
c. Shorter of legal life and useful life
d. At such time as diminution in value can be quantitatively determined.
(Adapted)

95. How should research and development costs be accounted for

according to current standards?
a. Must be capitalized when incurred and then amortized over their
estimated useful lives.
b. Must be expensed in the period incurred unless contractually
reimbursable.
c. May be either capitalized or expensed, when incurred, depending upon
the facts
d. Must be expensed in the period incurred unless it can be clearly
demonstrated that the research expenditure will have significant future
benefits.
(AICPA)

96. The current trend in the accounting treatment for research and
development costs is to
a. Capitalize all costs as assets when incurred and amortize when revenue
are earned.
b. Treat all costs as current expenses as incurred.
c. Capitalize selectively, and predetermine the conditions that would
require capitalization as well as those that would be written off as current
expenses.
d. Accumulate all costs in a special intangible asset account until a
determination can made as to the degree of future benefits.
(AICPA)

97. Research and development costs, under prevailing practice, may be

accounted for as follows:
a. Research and development costs related to successful projects should
be capitalized; others expensed.
b. Research and development costs related to unsuccessful projects
should be capitalized; others expensed.
c. Research and development costs should be expensed as incurred.
d. Research and development costs should be allocated between
successful and unsuccessful projects.
e. Research and development costs, whether related to successful or
unsuccessful projects, should be capitalized.
(AICPA)
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PAS 38 – INTANGIBLE ASSETS
98. An activity that would be expensed currently as research and
development costs is the
a. Testing in search for or evaluation of product or process alternatives.
b. Adaptation of an existing capability to a particular requirement or
customer’s need as a part of continuing commercial activity.
c. Legal work in connection with patent applications or litigation, and the
sale or licensing of patents.
d. Engineering follow-through in an early phase of commercial
production.
(AICPA)

99. Which of the following expenses can be capitalized?

I. Research costs incurred in developing a new medicine.
II. Purchase of intangibles for R&D activities which
have alternative future uses.
III. Salaries of research personnel.
a. II only b. I & II c. III only d. none of them

100. Are the following statements true or false, according to PAS 38

Intangible assets?
(1) Expenditure during the research phase of a project may sometimes be
capitalized as an intangible asset.
(2) Expenditure during the development phase of a project may
sometimes be capitalized as an intangible asset.
a. False False b. False True c. True False d. True True
(ACCA)

101. Are the following statements in relation to development true or false,

according to PAS 38 Intangible assets?
(1) The products being developed should have already been put into
commercial production or use.
(2) Development involves the application of research findings.
a. False False b. False True c. True False d. True
True
(ACCA)

102. Which of the following is not considered as research and development

costs?
a. Testing in search for product alternatives
b. Legal work on patent application
c. Modification of design of a process
d. Searching for application of new research findings
e. The design of tools, molds and dies involving new technology.

103. According to PAS 38, which of the following is true for an acquiring
company in connection with in-process research and development held by
an acquired company at the date of acquisition?
a. The amount that has been spent on these projects is expensed, but any
value in the project in excess of the amount spent is capitalized by the
acquiring company.
b. The value of in-process research and development is capitalized
because the acquiring company has a clear vision of its value.
c. In-process research and development is still research and development
and the value is always expensed by the acquiring company.
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PAS 38 – INTANGIBLE ASSETS
d. The value of in-process research and development is expensed unless
it has a direct connection with a product or asset owned by the acquiring
company.
(Adapted)

104. AJAR Airline purchased airline gate rights at SLIGHTLY OPEN

International Airport for ₱2,000,000 with a legal life of five years. However,
AJAR has the ability and right to extend the rights every ten years for an
indefinite period of time. Over what period of time should AJAR amortize
the gate rights?
a. 5 years. c. 40 years.
b. 15 years d. The rights should not be amortized.
(AICPA)

105. The following statements relate to accounting for intangible assets.

Choose the incorrect statement.
a. Because it has an indefinite life, a trademark need not be amortized.
b. If a company purchases a competing patent to ensure revenue -
generating capability of a previously owned patent, the cost of the
purchased patent should be expensed at the time of purchase.
c. The process of assigning the cost of an intangible asset to operations in
a systematic and rational manner is called amortization.
d. Goodwill may represent the excess of the cost of an acquired company
over the sum of the fair values assigned to identifiable assets acquired
less liabilities assumed.

106. Consider the following statements and state whether they are correctly
stated or not.
I. Goodwill is recorded by accountants only if it is purchased.
II. A copyright’s legal life is 30 years and it gives its owner protection
against writings and literary productions being reproduced illegally.
a. I b. II c. I and II d. neither I nor II

107. A patent purchased from another entity which had held it for 3 years
should be amortized over
a. the asset’s remaining useful life, not to exceed 37
b. any number not to exceed to 40
c. 17 years
d. the asset’s remaining useful life, not to exceed 17
(Adapted)

108. Which of the following intangible assets should be amortized over the
periods of estimated benefit?
a. research and development costs related to a successful product
b. goodwill arising from the purchase of an existing business
c. costs incurred in organizing a corporation
d. patent right purchased from an inventor
(AICPA)

109. In a case of a patent infringement suit, the suit may be either successful
or lost. The results of the legal decision are accounted for as follows:
a. if successful, debit the cost of the lawsuit to patent expense.
b. if lost, debit the cost of the lawsuit to extraordinary loss.
c. if lost, write the balance in the patent account.
 CHAPTER 20
PAS 38 – INTANGIBLE ASSETS
d. after recognizing the results of the lawsuit as an expense, amortize the
remaining balance in the patent occur over its remaining economic life.
(Adapted)

110. A purchased patent has a remaining legal life of 15 years. It should be

a. Expensed in the year of the acquisition.
b. Amortized over 15 years regardless of its useful life.
c. Amortized over its useful life if less than 15 years.
d. Not amortized.
(AICPA)

111. A corporation which incurs costs in defending a patent in an

infringement suit should:
a. expense currently the costs of all suits.
b. capitalize only the costs of unsuccessful suits.
c. capitalize only the costs of successful suits.
d. capitalize the cost of all such suits.
(Adapted)

112. Should the following fees associated with the registration of an internally
developed patent be capitalized? (Item#1) Legal fees; (Item#2)
Registration fees
a. No, No b. No, Yes c. Yes, No d. Yes, Yes
(AICPA)

113. Which of the following statements concerning patents is correct?

a. Legal costs incurred to successfully defend an internally developed
patent should be expensed immediately in the period incurred.
b. Legal fees and other direct costs incurred in registering a patent should
be capitalized and amortized on a straight-line basis over a five- year
period.
c. Research and development contract services purchased from others
and used to develop a patented manufacturing process should be
capitalized and amortized over the patent’s economic life.
d. Research and development costs incurred to develop a patented item
should be capitalized and amortized on a straight-line basis over
seventeen years.
(AICPA)

114. Which of the following amounts incurred in connection with a

trademark should be capitalized?
Cost of successful defense Registration fees
a. no yes
b. yes no
c. no no
d. yes yes
(AICPA)

115. Which of the following should not be capitalized as part of the cost of
an internally developed patent?
a. costs to develop the product or process to be patented
b. patent registration fees
c. legal fees incurred in successfully defending a patent
infringement suit.
d. legal fees associated with registration of the patent
e. a and c
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PAS 38 – INTANGIBLE ASSETS
(AICPA)

116. The cost of purchasing patent rights for a product that might otherwise
have seriously competed with one of the purchaser's patented products
should be
a. charged off in the current period.
b. amortized over the legal life of the purchased patent.
c. added to factory overhead and allocated to production of the
purchaser's product.
d. amortized over the remaining estimated life of the original patent
covering the product whose market would have been impaired by
competition from the newly patented product.
(AICPA)

117. Inventor Corporation was granted a patent on a product on January 1,

20x1. To protect its patent, the corporation purchased on January 1, 2x10
a patent on a competing product which was originally issued on January
10, 20x6. Because of its unique plant, Inventor Corporation does not feel
the competing patent can be used in producing a product. The cost of the
competing patent should be
a. amortized over a maximum period of 20 years.
b. amortized over a maximum period of 16 years.
c. amortized over a maximum period of 11 years.
d. expensed in 2x10.
(AICPA)

118. Plaintiff, Inc. went to court this year and successfully defended its patent
from infringement by a competitor. The cost of this defense should be
charged to
a. patents and amortized over the legal life of the patent.
b. legal fees and amortized over 5 years or less.
c. expenses of the period.
d. patents and amortized over the remaining useful life of the patent.
(AICPA)

119. Which of the following is not an intangible asset?

a. Trade name d. Copyrights
b. R&D expense e. No answer
c. Franchise
(AICPA)

120. Which of the following intangible assets should not be amortized?

a. Copyrights c. Perpetual franchises
b. Customer lists d. No answer
(AICPA)
121. Under current PFRSs, when a patent is amortized, the credit is made to
a. the patent account.
b. an accumulated amortization account.
c. a deferred credit account.
d. an expense account.
(Adapted)

122. Which of the following confers exclusive right to conduct business in a

particular territory
a. trademark b. franchise c. patent d. copyright
(Adapted)
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PAS 38 – INTANGIBLE ASSETS
123. An exclusive right or privilege received by a business or individual to
perform certain business functions or use certain products or services is
referred to as:
a. patents b. copyright c. franchise d. none of
these

124. If a franchise becomes worthless prior to the end of its estimated useful
life, the unamortized balance in the franchise account should be written off
as a(n):
a. impairment loss c. prior period adjustment
b. operating expense d. change in estimate
(Adapted)

125. Which of the following statements is incorrect?

a. An intangible asset acquired by issuance of ordinary shares should
generally be valued at the fair value of the intangible asset.
b. Amortization of intangible assets involves an adjusting entry that
should not be reversed in the next accounting period.
c. An unidentifiable asset developed internally is never recognized in the
accounts as an asset.
d. All annual payments made by a franchisee to the franchiser for
assistance should be capitalized as part of the cost of the franchise.
(Adapted)

126. A franchise should be classified on the balance sheet as a (n):

a. operational asset c. intangible asset
b. deferred charge d. current asset
(Adapted)

127. Which of the following cost related to computer software is capitalized

to an intangible asset account?
a. Cost to duplicate discs and manuals for sale
b. Development costs preceding technological feasibility
c. Coding and testing costs incurred after technological feasibility but
before completing the product master
d. Cost of customer service
(Adapted)

128. If a business purchased a new computer system software which forms

an integral part of a machine, the account to be debited is
a. machine c. intangible asset
b. computer building d. Bill Gates

129. OUTLANDISH and STRANGE are rival firms which are similar in size and
scope of operations. OUTLANDISH has decided not to capitalize but
expense software development costs in Year 1. STRANGE on the other
hand, has decided to capitalize a similar amount of development costs, to
be amortized over 5 years. Which of the following is/are true over the next
5 years?
I. STRANGE will show higher equity than OUTLANDISH
II. The difference in STRANGE's assets and OUTLANDISH's assets will be
lower in Year 3 than in Year 2.
III. The total tax deductions due to the development costs are equal for
the two firms.
 CHAPTER 20
PAS 38 – INTANGIBLE ASSETS
IV. After technological feasibility, all software development costs can be
capitalized under PAS 38.
a. III only b. II & III c. I & II d. I, II, III, IV

130. Which of the following costs can be capitalized?

a. drilling costs for oil wells
b. public relations costs to develop goodwill
c. research and development
d. internally developed brand

131. Accounting rules differentiate research and development activities from

activities not considered research and development. Which one of the following
is not considered a research and development activit y?
a. Periodic design changes to existing products.
b. Testing in search of product processing alternatives.
c. Modification of the design of a process.
d. Laboratory research intended for the discovery of a new product.

132. On January 1, 20x1, Joca purchased equipment for use in developing a new
product. Joca uses the straight-line depreciation method. The equipment could
provide benefits over a 10-year period. However, the new product development
is expected to take five years, and the equipment can be used only for this project.
Joca 's 20x1 expense equals:
a. The total cost of the equipment.
b. One-fifth of the cost of the equipment.
c. One-tenth of the cost of the equipment.
d. Zero.
(AICPA)

Disclosures
133. Which of the following disclosures is not required by PAS 38?
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.
(Adapted)

134. All of the following are required disclosures for intangible assets except
a. Whether the useful lives are indefinite or finite and, if finite, the useful lives
or the amortization rates used
b. Amortization methods used for intangible assets with finite useful lives
c. Gross carrying amount and any accumulated amortization (aggregated with
accumulated impairment losses) at the beginning and end of the period
d. A reconciliation of the carrying amount at the beginning and end of the period
showing increases and decreases to intangible assets and related
accumulated amortization and accumulated impairment loss.
e. Net carrying amount of intangible assets. Accumulated amortization is not
required to be disclosed because periodic amortization is deducted directly
from the related asset account.