intangible assets Flashcards

(71 cards)

1
Q

What is an intangible asset?

A

An identifiable non-monetary asset without physical substance.

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2
Q

What must an asset meet to be recognized as an intangible asset?

A

It must be identifiable, controlled by an entity, and expected to provide future economic benefits.

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3
Q

What are the key characteristics of intangible assets?

A
  • Lack of physical form
  • Identifiability
  • Non-monetary nature
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4
Q

How is control defined in relation to intangible assets?

A

An entity controls an asset if it can obtain future economic benefits and restrict access to others.

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5
Q

Give examples of intangible assets.

A
  • Patents
  • Goodwill
  • Intellectual property
  • Computer software
  • Copyrights
  • Customer lists
  • Trademarks
  • Franchises
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6
Q

What does IAS 38 govern?

A

The accounting for intangible assets with specific exceptions.

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7
Q

Name some exceptions to IAS 38.

A
  • Financial assets (IAS 32)
  • Exploration and evaluation assets (IFRS 6)
  • Development and extraction costs of minerals, oil, etc.
  • Intangible assets held for sale (IAS 2)
  • Deferred tax assets (IAS 12)
  • Leases (IFRS 16)
  • Employee benefits (IAS 19)
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8
Q

When should an intangible asset be recognized?

A

If it is probable that expected future economic benefits will flow to the entity and the cost can be measured reliably.

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9
Q

What is the initial measurement for a separately acquired intangible asset?

A

At cost, including purchase price and directly attributable expenditure.

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10
Q

How are intangible assets acquired in a business combination measured initially?

A

At their fair value at the acquisition date.

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11
Q

What is the treatment for internally generated goodwill?

A

It shall not be recognized as an asset.

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12
Q

What phases are involved in assessing internally generated intangible assets?

A
  • Research phase
  • Development phase
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13
Q

What is the treatment of expenditure during the research phase?

A

Recognized as an expense when incurred.

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14
Q

What conditions must be met for an intangible asset from the development phase to be recognized?

A
  • Technical feasibility
  • Intention to complete
  • Ability to use or sell
  • Generation of future economic benefits
  • Availability of resources
  • Reliable measurement of expenditure
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15
Q

What are the accounting policy choices for measuring intangible assets after recognition?

A
  • Cost model
  • Revaluation model
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16
Q

Describe the cost model for intangible assets.

A

Carried at cost less accumulated amortization and impairment losses.

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17
Q

What is the revaluation model for intangible assets?

A

Carried at fair value less subsequent accumulated amortization and impairment losses.

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18
Q

How are finite useful life intangible assets amortized?

A

Systematically over their useful life, beginning when available for use.

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19
Q

When are intangible assets with indefinite useful lives tested for impairment?

A

At least annually.

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20
Q

What is necessary for derecognition of an intangible asset?

A
  • Disposal
  • No expected future economic benefits
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21
Q

What disclosures are required under IAS 38 for intangible assets?

A
  • Useful lives (finite or indefinite)
  • Amortization rates and methods
  • Carrying amounts
  • Reconciliation of carrying amounts
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22
Q

What must be disclosed for intangible assets with indefinite useful lives?

A

Carrying amount and reasons supporting the indefinite assessment.

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23
Q

What amendments have been made to IAS 38?

A
  • Revenue-based amortization
  • Consequential amendments from other IFRS standards
  • Clarifications on depreciation and amortization methods
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24
Q

What is the definition of an intangible asset according to IAS 38?

A

An identifiable non-monetary asset without physical substance. An asset is identifiable if it is separable or arises from contractual or other legal rights.

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25
What are the two main recognition criteria for an intangible asset?
* It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity. * The cost of the asset can be measured reliably.
26
How is a separately acquired intangible asset initially measured?
A separately acquired intangible asset is initially measured at cost. Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition.
27
How is an intangible asset acquired as part of a business combination initially measured?
at its fair value at the acquisition date. The probability recognition criterion is always considered satisfied in this case.
28
What are the two models for measurement after recognition of an intangible asset?
The two models are: • Cost model: Carried at cost less any accumulated amortisation and any accumulated impairment losses. • Revaluation model: Carried at a revalued amount (fair value at the date of revaluation) less any subsequent accumulated amortisation and any subsequent accumulated impairment losses. This model requires an active market.
29
What is the accounting treatment for intangible assets with finite versus indefinite useful lives?
• Intangible assets with a finite useful life are amortised systematically over that life. • Intangible assets with an indefinite useful life are not amortised but are tested for impairment annually. An indefinite life means there is no foreseeable limit to the period the asset is expected to generate net cash inflows.
30
When does amortisation of an intangible asset with a finite useful life begin and cease?
Amortisation begins when the asset is available for use and ceases at the earlier of when the asset is classified as held for sale or when the asset is derecognised. The amortisation method should reflect the pattern of consumption of the asset's economic benefits; if this cannot be reliably determined, the straight-line method is used.
31
What is the accounting treatment for research expenditure?
Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred. This is because an entity cannot demonstrate at this stage that an intangible asset exists that will generate probable future economic benefits.
32
Under what conditions can development expenditure be capitalised as an intangible asset?
An intangible asset arising from development (or from the development phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all of the following: • The technical feasibility of completing the asset. • Its intention to complete the asset and use or sell it. • Its ability to use or sell the asset. • How the asset will generate probable future economic benefits. • The availability of adequate technical, financial and other resources to complete the development. • Its ability to measure reliably the expenditure attributable to the intangible asset during its development.
33
Give examples of internally generated items that are not recognised as intangible assets.
Internally generated goodwill shall not be recognised as an asset. Also, internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets. This is because the expenditure cannot be distinguished from the cost of developing the business as a whole.
34
What is goodwill as described in the context of intangible assets?
Goodwill recognised in a business combination is an asset representing the future economic benefits arising from other assets acquired that are not individually identified and separately recognised. It may result from synergy between identifiable assets or from assets that individually do not qualify for recognition. Internally generated goodwill is not recognised as it is not identifiable.
35
What are some common examples of intangible assets?
Common examples include computer software, patents, copyrights, motion picture films, customer lists, trademarks (including brand names), and franchises.
36
True or False: An intangible asset is a monetary asset without physical substance.
False. An intangible asset is a non-monetary asset without physical substance.
37
True or False: If an intangible asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably its fair value.
True.
38
True or False: Internally generated goodwill shall be recognised as an asset.
False. Internally generated goodwill shall not be recognised as an asset.
39
True or False: Expenditure on the research phase of an internal project to create an intangible asset shall be recognised as an expense when it is incurred.
True.
40
True or False: An intangible asset arising from development shall always be recognised.
False. An intangible asset arising from development shall be recognised only if certain criteria are met.
41
True or False: Internally generated brands shall be recognised as intangible assets if their cost can be measured reliably.
False. Internally generated brands shall not be recognised as intangible assets.
42
True or False: Under the cost model, an intangible asset is carried at cost less any accumulated amortisation and any accumulated impairment losses.
True.
43
True or False: The revaluation model for intangible assets can be used even if there is no active market for the asset.
False. The revaluation model can only be used if there is an active market for the intangible asset.
44
True or False: Intangible assets with an indefinite useful life are amortised systematically over their useful life.
False. Intangible assets with an indefinite useful life are not amortised.
45
True or False: The useful life of an intangible asset that arises from contractual rights cannot exceed the period of those contractual rights.
True.
46
True or False: Amortisation of an intangible asset with a finite useful life begins when the asset is acquired.
False. Amortisation shall begin when the asset is available for use.
47
True or False: A revenue-based amortisation method is always appropriate for intangible assets.
False. There is a rebuttable presumption that a revenue-based amortisation method is inappropriate, except in limited circumstances.
48
True or False: An intangible asset shall be derecognised only on disposal.
False. An intangible asset shall be derecognised on disposal or when no future economic benefits are expected from its use or disposal.
49
True or False: Tangible assets have physical forms such as buildings or office furniture.
True.
50
True or False: Goodwill is a tangible asset.
False. Goodwill is an intangible asset.
51
True or False: A brand name is typically considered an intangible asset with a definite life.
False. A brand name is considered indefinite.
52
True or False: The market approach to valuing intangible assets is always straightforward due to publicly available information.
False. It may prove difficult because of the limited details available about assets held by other companies.
53
True or False: Inventory is considered a fixed tangible asset.
False. Inventory is a current tangible asset.
54
True or False: IAS 38 applies to intangible assets covered by another accounting standard.
False. IAS 38 covers all intangible assets unless another Standard specifies the accounting treatment.
55
True or False: An intangible asset must be recognised if it is probable that future economic benefits will flow and its cost can be reliably measured.
True.
56
True or False: Advertising expenditure should always be capitalised as part of an intangible asset.
False. Advertising expenditure is generally expensed.
57
True or False: The cost of a separately purchased intangible asset includes its purchase price and directly attributable costs to prepare it for use.
True.
58
True or False: Research costs are always capitalised.
False. Research costs are expensed.
59
True or False: Development costs can be capitalised if certain criteria are met.
True.
60
True or False: Amortisation reflects the decrease in the physical substance of an intangible asset.
False. Amortisation reflects the reduction in the asset's remaining economic benefits.
61
True or False: Intangible assets with an indefinite useful life are not subject to impairment testing.
False. Intangible assets with an indefinite useful life must be tested for impairment.
62
True or False: Intangible assets have physical substance.
False. Intangible assets are without physical substance.
63
True or False: Patents and copyrights are examples of intangible assets.
True.
64
True or False: Costs incurred to generate an intangible asset internally can always be capitalised.
False. Costs incurred to generate an intangible asset internally are only capitalised if specific recognition criteria are met.
65
True or False: Research costs are generally expensed.
True.
66
True or False: The cost model and the revaluation model are the two measurement models available after the initial recognition of an intangible asset.
True.
67
True or False: An active market can exist for brands and trademarks.
False. Active markets will not exist for brands and trademarks.
68
True or False: Intangible assets with a finite useful life are amortised.
True.
69
True or False: Intangible assets with an indefinite useful life are amortised annually.
False. Intangible assets with an indefinite useful life are not amortised but are tested for impairment.
70
True or False: Intangible assets are derecognised when they are sold or when they no longer provide future economic benefits.
True.
71