GR 13

For IFRS reporting, intangible assets may be valued at

cost less accumulated amortization. fair value.

Which of the following costs may be capitalized into the cost of a trademark?

Design costs Fees for a successful legal defense Registration fees

What is the first issue that needs to be addressed in order to properly report tangible and intangible assets?

Determining the amounts to be included in the assets' initial cost

True or false: Goodwill is the intangible value of a company's employees, management team, and business location that is recorded by the company.

False

In a business acquisition, goodwill equals the purchase price

Less the fair value of net assets acquired

Expenditures subsequent to acquisition may be properly capitalized when they increase the asset's service life or increase its productive capacity. However, most companies set thresholds for capitalizing these expenditures based on

Materiality

Which of the following are classified as natural resources?

Mineral deposits Oil deposits

Correctly match the intangible asset with the description

Purchased intangible asset - patents, copyrights, trademarks, or franchise rights acquired from other companies. Internally developed intangible asset - Product or process created by company personnel for which protective patent is obtained.

If an intangible right is successfully defended, the legal costs should be

capitalized

Select the correct accounting treatment for subsequent expenditures relating to long-term assets with the corresponding description.

capitalized as incurred- expenditure increases future benefits derived from asset expensed as incurred - expenditure yields benefits in current period only.

A(n) _ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

Expenditures for repairs and maintenance should be _ in the period incurred.

expensed

If an intangible right is not successfully defended, the legal costs should be

expensed

For a patent developed internally, the research and development costs are

expensed as incurred

If a company generates its own goodwill through advertising or training, how should these costs be treated?

expenses the costs as incurred

A(n) _ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and products rights within a specific geographic area for a specific period of time.

franchise

The initial valuation of purchased intangible assets requires that the intangible asset is recorded

original cost

The exclusive legal right to manufacture a product or to use a process is called a _.

patent

Which of the following is an intangible asset?

patent copyright trademark

A _ is the exclusive right to manufacture a product or use a process for a period of _ years.

patent, 20

Match each intangible asset with its definition.

patent- exclusive right to produce a product or use a process Copyright-Exclusive right of protection given to a creator of a published work Trademark-Exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company Franchise- Contractual agreement in which an entity may use a company's name, products, and formulas

The amortization of an intangible asset occurs over the period of time that is the _ of the legal, regulatory, contractual, or service life.

shorter

True or false: repairs and maintenance expenditures related to an asset do not increase future benefits.

true

If a company bases depreciation expense on the life of a machine in hours, and depreciates the machine for the number of hours used during the year, it is using the ______ method of depreciation.

units of production method

The residual value of an intangible asset is usually

zero

Match the cost allocation terms with the type of assets to which they relate.

depreciation - property,plant, and equipment amortization - intangible assets

The portion of a tangible asset's cost that is recognized as an expense in the current year is called

depreciation expense

The types of expenditures that can occur subsequent to an asset's acquisition are

repairs and maintenance additions improvements

The cumulative amount of a tangible asset's cost that has been depreciated in all prior years plus the current year is called

accumulated depreciation

Unit of production or units of output are alternative terms for the _. _ depreciation method.

activity, based

On January 1, 20X1, Claire Corp. purchased a patent. One month after acquiring the patent, Claire paid $3,000 in legal fees to successfully defend its right to the patent. The $3,000 should be:

added to the Patent account

Attorney fees and other cost necessary to secure a patent should be

added to the patent account

The total amount of cost to be allocated over an asset's service life is called its allocation

base

When assets are purchased in a group for a single sum, it is referred to as a

basket purchase

The original cost of an asset minus accumulated depreciation is

book value

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the consideration received and the ______ value of the asset sold.

book value

An expenditure that qualifies as an addition should be

capitalized

The journal entry to record the allocation of the cost of a natural resource will include a

credit to natural resource

The journal entry to record depreciation expense includes

debit depreciation expense credit accumulated depreciation

Which of the following are accelerated methods of depreciation?

declining balance method sum-of-the-years'-digits method double-declining-balance method

Which depreciation method allocate the cost of long-term assets based on time?

declining-balance straight-line

The total cost of plant and equipment to be expensed over its service life is referred to as its

depreciable base

The allocation of the cost of a tangible asset over its service life is referred to as _.

depreciation

Match the accounting treatment of costs associated with intangible assets with the description.

expensed - research and development costs Capitalized - Purchase price plus costs necessary to get asset ready for use

Which of the following costs are capitalized as an asset for an internally developed patent?

filing fees legal fees

When a company acquires a business in a business acquisition and the consideration paid is greater than the fair value of the net assets acquired, the excess is reported as _.

goodwill

Goodwill may only be recognized

in a business acquistition

If obsolescence were expected to limit the longevity of a protected product, the useful life of a patent might be _________ its legal life.

less than

Intangible assets are written down when events or changes in circumstances indicate that the asset's _ amount is less than its _ amount.

recoverable;recorded

A basket purchase or lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's _.

relative fair value

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the

straight line method

Most companies use _-_ amortization for intangible assets.

straight, line

Match the type of depreciation method with the reporting basis.

straight-line commonly used for financial statement purposes MACRS commonly used for tax reporting

The service life or useful life of an asset is

the amount of use that the company expects to obtain from the asset before disposing of it.

The depreciable cost is

the cost of the asset minus the residual value.

Straight-line depreciation is calculated as the depreciable base divided by

the estimated useful life of the asset

Total depreciation recorded over an asset's service life is:

the same regardless of the depreciation method used

Consistent with IFRS rules for R&D, the costs of research-related activities are recorded as _,while the costs of development-related activities are recorded as _ _.

expenses, intangible, assets

Berner Inc. Internally developed a patent, which has an estimated vale of $25 million. Related legal, design and registration fees were $155,000. The amount reported on Berner's balance sheet should be:

$155,000

Monet Company purchased a patent with an estimated service life of ten years for $200,000 After three years of amortizing the patent using the straight-line method, Monet estimates that the remaining useful life is only 5 years. Depreciation expense for the fourth year is:

$28,000

The formula for straight-line depreciation is

(cost-residual value)/service life

Which item qualifies as an addition and should be capitalized?

Adding a new computer-aided cutting device to an existing machine.

Which of the following are expenditures for assets subsequent to acquisition?

Additions Imprrovements Repairs and maintenance

Linx Corporation internally develops an intangible asset with research and development costs of $10,000. How should Linx report this transaction?

As an expense in the period

Match each term with its definition: 1) Depreciation 2) Depletion 3) Amortization

Depreciation - Allocation of the cost of a tangible fixed asset Depletion - Allocation of the cost of natural resources Amortization - Allocation of the cost of an intangible asset

Amortization refers to the allocation of the cost of _ assets to expense.

intangible

An asset that has no physical substance is called a(n) _ asset.

intangible

No amortization is recorded for

intangible assets with indefinite lives

No amortization is recorded for

intangible assets with indefinite lives.

Intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles are created by a company are referred to as

internally developed intangibles

_ _ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process, whereas equipment, land, and buildings have physical characteristics that remain unchanged.

natural resources

The accounting for copyright uses the same accounting rules are

patents

If a company has a commitment from another company to purchase its indefinite life intangible asset at the end of its useful life at a specific price, the company should utilize a residual value equal to

pre specified sales price

Norma installs a new motor in its manufacturing equipment. The new motor is expected to increase output by 20%. The cost of the new motor should be capitalized because it:

provides a future benefit

Straight-line and declining balance methods allocate the cost of a long-term asset based on _, while an activity-based method allocates the cost of an asset based on its _.

time, use

Although activity-based depreciation methods are theoretically superior to time-based methods, activity-based methods are

too costly to use. difficult to apply in practice.

When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as _.

goodwill

_ value is the amount the company expects to receive for the asset at the end of its service life.

residual

Match the recognition of related cots incurrent during the year with the description of the intangible asset.

Expensed when incurred - mueller's industrial engineers develop a new process for which the compny was granted a patent. Capitalized as an intangible asset - mueller's purchases the right to manufacture a new product for which patton inc. holds the patent.

True or false: Expenditures that qualify as an addition should be expensed in the period incurred.

False

Which of the following costs are expensed under both U.S. GAAP and IFRS?

Research costs only

Which of the following expenditures are classified as repairs and maintenance for a vehicle owned by the company?

Routine oil change engine tune-up

characteristics of goodwill

Subject to impairment testing Indefinite life

The formula for calculating declining balance depreciation is the depreciation rate per year times

The book value at the beginning of the year

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True

Allocating the cost of intangible assets to expense is referred to as

amortization

A new major component that is added to an existing asset is called

an addition

If a company replaces a major component of an asset with a new component with the same characteristics of an old component, it is classified as

an improvement

The allocation of the cost of a tangible fixed asset is referred to as _, whereas the allocation of the cost of an intangible asset is referred to as _.

depreciation, amortization

An asset that is traded for another asset is treated as a(n) _, whereas an asset that is sold or retired is treated as a disposition.

exchange

Which statement is true about the straight-line method of depreciation?

it allocates an equal of depreciation to each year the asset is used.

The FASB requires research and development costs to be expensed because

it is difficult to objectively determine the future benefits

The useful life of an intangible asset may be limited by what type of provisions?

legal contractual regulatory

A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include.

legal costs to acquire required filing fees purchase price

True or false: All long-term assets are subject to impairment rules.

true

A subsequent expenditure for an asset increases the future benefits of the asset if it

Increases the operating efficiency of the asset increases the quality of the goods or services produced by the asset extends the asset's service life

What costs are capitalized as an intangible asset for a franchise?

Initial payment for the franchise

In accounting terminology, the life of a trademark is considered

indefinite