Deck 24: Financial Instruments

Question 1

The cost of an intangible asset is comprised of the fair value of the consideration:

A) less legal costs incurred in the purchase;
B) plus directly attributable costs;
C) plus indirect costs;
D) less directly attributable costs.

Answer 1

B

Question 2

The two key characteristics of intangible assets are that they are identifiable and that they:

A) have physical substance;
B) are monetary assets;
C) represent current obligations of the entity;
D) lack physical substance.

Answer 2

D

Question 3

IAS 38 Intangibles, requires that an intangible asset with a finite life:

A) be amortised across its useful life;
B) be amortised across a period of no greater than 20 years;
C) not be amortised in periods when it is been properly maintained;
D) not be subject to amortisation charges.

Answer 3

A

Question 4

Unless acquired under a business combination, intangible assets must be initially measured using which of the following measurement approaches?

A) discounted cash flows;
B) fair value;
C) net present value;
D) cost.

Question 5

Which of the following statements is NOT correct?

A) intangible assets are to be derecognised when there are no expected future benefits from the asset;
B) amortisation of an intangible with a finite useful life does not cease when the asset becomes temporarily idle;
C) amortisation of an intangible with an indefinite life does not cease when the asset is retired from active use;
D) gains or losses on disposal are calculated as the difference between the proceeds on disposal and the carrying amount at point of sale, with amortisation calculated up to the point of sale.

Question 6

The recognition criteria that an asset must meet before it may be recognised and presented in the financial statements include:

A) that the recognition of the asset is relevant to user decision making;
B) probability that future economic benefits will flow to the entity;
C) that the information about the asset is neutral;
D) a likelihood that the cost of the asset is verifiable.

Question 7

The original and planned investigation undertaken with the prospect of gaining new knowledge is described as:

A) exploration;
B) development;
C) investigation;
D) research.

Question 8

Under IAS 38 Intangibles, goodwill may only be recognised as an asset if it:

A) arises as a result of creating new assets within the normal business operations;
B) does not exceed its internally recorded cost;
C) is internally generated;
D) is acquired as part of a business combination.

Question 9

Wojtowicz Limited was involved in a mining exploration business. It commenced a project to design more efficient gold detecting equipment. The following expenditures occurred during the financial year ended 2013:
$\bullet$ Researcher's salary £5000
$\bullet$ Research consumables £3000
$\bullet$ Re-development of the detecting equipment £4000
$\bullet$ Final adjustments to the detecting equipment £2500.
The amount to be capitalised by this company as an intangible asset, for the 2013 financial year, is:

A) £6500;
B) £8000;
C) £11 500;
D) £14 500.

Question 10

A key characteristic that separates assets such as property, plant and equipment from intangible assets is:

A) separability;
B) length of useful life;
C) lack of physical substance;
D) reliability.

Question 11

Under IAS 38 Intangibles, an intangible asset with an indefinite useful life is:

A) not able to be recognised by an entity as an asset;
B) not subject to annual amortisation charges;
C) amortised using the straight-line method over a period of no more than 20 years;
D) amortised using the reducing balance method over a period not exceeding 5 years.

Question 12

Parsons Limited was involved in a highly successful plastics manufacturing business. It commenced a project to design a more efficient extrusion system for its plastic pipes. The following outlays occurred:
$\bullet$ January: Research salaries £50 000
$\bullet$ February: Research materials £30 000
$\bullet$ March: Re-development of the extrusion plant £400 000
$\bullet$ April: Final adjustments to the extrusion plant £25 000.
The amount to be expensed by this company at the end of the financial year, 30 June, is:

A) £30 000;
B) £50 000;
C) £80 000;
D) £480 000.

Question 13

When an intangible asset is acquired by an exchange of assets, which of the following measures will need to be considered in the determination of that cost?

A) The fair value of the asset given up;
B) The initial cost of the asset given up;
C) The carrying amount of the asset received;
D) The replacement cost of the asset received.

Question 14

Which of the following assets is regarded as meeting the identifiability criteria for recognition as an identifiable intangible asset that may be acquired in a business combination?

A) customer service capability;
B) newspaper mastheads;
C) favourable government relations;
D) presence in geographic locations.

Question 15

According to the definition provided in IAS 38 Intangibles, activities undertaken in the 'research' phase of the generation of an asset may include:

A) the application of knowledge to a design for the production of new materials;
B) original and planned investigation with the prospect of gaining new scientific knowledge;
C) the use of research findings to create a substantially improved product;
D) using knowledge to materially improve a manufacturing device.

Question 16

The characteristic that distinguishes the goodwill from other intangible assets is:

A) identifiability;
B) its nature as a monetary asset;
C) that is has a physical embodiment;
D) it can be separated from the entity and sold individually.

Question 17

Items such as market knowledge, effective advertising programs, fundraising capabilities and trained staff are NOT regarded as assets because they:

A) are monetary items;
B) cannot be measured;
C) are not controlled by the entity;
D) are too difficult to manage.

Question 18

Which of the following assets is regarded as meeting the identifiability criteria for recognition as an identifiable intangible asset that can be recorded as acquired in a business combination?

A) customer base;
B) royalty agreements;
C) ongoing recruitment programs;
D) strong and favourable employee relations.

Question 19

IAS 38 Intangibles, requires that the following items in relation to intangibles, each be disclosed separately:

A) the opening balance of each intangible;
B) the closing balance of each intangible;
C) any impairment losses reversed in profit or loss during the period;
D) all amounts of intangibles acquired during the period.

Question 20

For an asset to be classified as an identifiable intangible, IAS 38 Intangibles requires that it meet which of the following criteria?
I) It arises from a contractual or legal right.
II) Its fair value must be able to be reliably measured.
III) It is separable from the entity.
IV) Its cost must reliably measurable.

A) I or IV only;
B) I or II only;
C) II or III only;
D) I or III only.

Question 21

When subsequent expenditure on intangible assets occurs the costs are:

A) recognised directly in retained earnings account;
B) immediately expensed;
C) transferred to a revaluation reserve account;
D) capitalised.

Question 22

Which of the following statements is correct?

A) IAS 38 requires disclosures about an entity's intangible assets, with disclosures being made on an asset by asset basis;
B) Disclosures about the useful lives of intangibles are required with explanations being required where assets are assessed to have finite useful lives;
C) Where the cost model is used, specific disclosures are required including assumptions made on estimating fair values;
D) Separate disclosures are required for internally generated intangibles.

Question 23

Which of the following statements is NOT correct?

A) intangible assets are to be derecognised on disposal;
B) amortisation of an intangible with a finite useful life ceases when the asset becomes temporarily idle;
C) intangible assets are to be derecognised when there are no expected future benefits from the asset;
D) gains or losses on disposal are calculated as the difference between the proceeds on disposal and the carrying amount at point of sale, with amortisation calculated up to the point of sale.

Question 24

Under the revaluation method of measuring an intangible, the asset is carried at fair value and subject to charges for:

A) amortisation and impairment;
B) inflation in value;
C) interest expense;
D) increment in value.