Problem 21-7 Multiple Choice (PAS 38)

1. Which condition must be met for an item to be recognized as an intangible asset other than goodwill?
a. The fair value can be measured reliably.
b. The item is part of an activity aimed at gaining new scientific or technical knowledge.
c. The item is expected to be used in the production or supply of goods or services.
d. The item is nonmonetary, identifiable and lacks physical substance.
2. An intangible asset is identifiable when
a. It is separable.
b. It arises from contractual and other legal right.
c. It is either separable or it arises from contractual and other legal right.
d. It is neither separable nor it arises from contractual and other legal right.
3. Which statement is true in relation to control by the entity of the intangible asset?
a. The capacity of the entity to control the economic benefits from an intangible asset would
normally stem from legal rights that are enforceable in a court of law.
b. The skill of employees arising out of the benefits of training cost cannot be recognized as
intangible asset.
c. Market share and customer loyalty cannot normally be recognized as intangible asset because
an entity cannot control of the action of customer.
d. All of these statements are true.
4. An intangible asset shall be recognized if
a. It is probable that future economic benefits attributable to the asset will flow to the entity.
b. The cost of the intangible asset can be measured reliably.
c. It is possible that future economic benefits attributable to the asset will flow to the entity and
the cost of the intangible asset can be measured reliably.
d. It is probable that future economic benefits attributable to the asset will flow to the entity and
the cost of the intangible can be measured reliably.
5. The cost of a separately acquired intangible asset comprises the purchase price and
a. Cost of introducing new product or service.
b. Cost of conducting a business in a new location.
c. Administration and other general overhead cost.
d. Directly attributable cost of preparing the asset for the intended use.
6. Directly attributable cost of preparing the intangible asset for the intended use include all of the
following, except
a. Cost of employee benefit arising directly from bringing the asset to the working condition.
b. Professional fee arising directly from bringing the asset to the working condition.
c. Cost of testing whether the asset is functioning properly.
d. Initial operating loss.
7. Which statement is true in relation to internally generated intangible asset?
a. Internally generated brand, masthead, publishing title and customer lists shall not be recognized
as an intangible asset.
b. The cost of internally generated intangible asset comprises all directly attributable costs
necessary to produce and prepare the asset for the intended use.
c. Internally generated goodwill shall not be recognized as an intangible asset.
d. All of these statements are true.
8. The cost of an internally generated asses includes all of the following, except
a. Cost of materials and services used in generating the intangible asset.
b. Compensation cost or personnel directly engaged in the generating asset.
c. Fee to register a legal right.
d. Expenditure on training staff to operate the asset.

Problem 21-8 Multiple choice (PAS 38)

1. After initial recognition, an intangible asset shall be measured using
a. Cost model
b. Revaluation model
c. Cost model or revaluation model
d. Cost model or fair value model
2. An entity that acquired an intangible asset may use the revaluation model for subsequent measurement
only when
a. The useful life of the intangible asset can be reliably determined.
b. An active market exists for the intangible asset.
c. The cost of the intangible asset can be measured reliably.
d. The intangible asset is a monetary asset.
3. Which statement is true concerning amotization and impairment of intangible asset?
a. Intangible asset with finite useful life are amortized over the useful life.
b. Intangible asset with finite useful life are tested for impairment at the end of reporting period
when there is an indication of impairment.
c. Intangible asset with indefinite useful life are not amortized but are tested for impairment are
least annually.
d. All of these statements are true.
4. An intangible asset is regarded as having an indefinite useful life when
a. The is no foreseeable limit to the period over which the asset is expected to generate net cash
inflows to the entity.
b. The is a foreseeable limit to the period over which the asset is expected to generate net cash
inflows to the entity.
c. The useful life of the intangible asset arises from contractual right.
d. The useful life of the intangible asset arises from legal right.
5. What is the method of amortizing intangible asset?
a. The straight line method, unless the pattern of the economic benefits can be determined
reliably.
b. The double declining balance in all circumstances.
c. A subjective amount of periodic amortization.
d. The straight line method in all circumstances.
6. The residual value of an intangible asset with a finite useful life shall be assumed zero, except
a. When there is a commitment be a third party to purchase the asset at the end of the useful life.
b. When there is an active market for the asset.
c. When there is a commitment by a third party to purchase the asset at the end of useful life or
there is an active for the asset and it is probable that such market will exist at the end of useful
life.
d. There are no exceptions.
7. One factor that is not considered in determining the useful life of an intangible asset is
a. Residual value
b. Provision for renewal or extension
c. Legal life
d. Expected action of competitors.
8. Factors in determining the useful life of an intangible asset include all of the following, except
a. The expected use of the asset.
b. Any legal or contractual provision.
c. Any provision for renewal or extension of the legal life.
d. The amortization method.

Problem 21-9 Multiple choice (IFRS)

1. Which does not qualify as an intangible asset?
a. Computer software
b. Registered patent
c. Copyright
d. Notebook computer
2. Which of the following would qualify as an intangible asset?
a. Advertising and promotion
b. Tuition fee paid to employees who decide to enrol in an M.B.A program while working with
the entity.
c. Operating loss during the initial stage of the project.
d. Legal cost paid to lawyers to register patent.
3. The recognition criteria for an intangible asset include which of the following conditions?
a. The intangible asset must be measured at cost.
b. The cost can be measured reliably.
c. It is probable that future economic benefit will arise from use.
d. It is probable that future economic benefit will arise from use and the cost can be measured
reliably.
4. Which is not a consideration in determining the useful life of an intangible asset?
a. Legal, regulatory or contractual provision
b. Provision for renewal or extension
c. Initial cost
d. Obsolescence
5. Amortization of an intangible asset with a finite useful life shall commence when
a. It is first recognized as an asset.
b. It is probable that it will generate economic benefit.
c. It is available for the intended use.
d. The cost can be identified with reasonable certainty.
6. Intangible asset are reported
a. With an accumulated amortization account
b. Under property, plant and equipment
c. As a separate line item
d. All of these are allowed
7. Intangible asset are classified as
a. Amortizable and unamotizable
b. Limited life and indefinite life
c. Specifically identifiable and goodwill type
d. Legally restricted and goodwill type
8. Intangible asset with indefinite useful life are tested for impairment
a. Quarterly
b. Annually
c. Biannually
d. There is no definite guideline for impairment
9. The major problem for an intangible asset is determining
a. Fair value
b. Separability
c. Residual value
d. Useful life
10. Operating loss incurred during the start-up years of a new entity should be
a. Accounted for like any other operating loss
b. Written off directly against retained earnings
c. Capitalized and amortized over five years
d. Capitalized as an intangible asset and amortized over twenty years.
Problem 21-10 Multiple choice (IAA)
1. How should research and development costs be counted for?
a. Capitalized when incurred and amortized over the useful life.
b. Expense in the period incurred.
c. Either capitalized or expensed when incurred depending upon materiality.
d. Expensed in the period incurred unless it can be clearly demonstrated that the expenditure will
have alternative future use or unless contractually reimbursable.
2. Which of the following would be considered research and development?
a. Routine effort to refine an existing product.
b. Periodic alteration to existing production line.
c. Marketing research to promote a new product.
d. Construction of prototype.
3. Which of the following costs should not be capitalized?
a. Acquisition cost of equipment to be used on current and future research project.
b. Engineering cost incurred to advance the product to the full production stage.
c. Cost incurred to file for patent.
d. Cost of testing prototype before economic feasibility has been demonstrated.
4. Which of the following costs should be excluded from research and development expense?
a. Modification of the design of a product.
b. Acquisition of research and development 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.
5. Which of the following should not be considered as research and development activity?
a. Adaptation of an existing capability to a particular requirement or customer need.
b. Application of research finding or other knowledge to a plan for a new product.
c. Laboratory research aimed at discovery of new knowledge.
d. Conceptual formulation and design of possible product alternative.
6. Research activities include all of the following, except
a. Search of application of research finding or other knowledge.
b. Search for product or process alternative.
c. Formulation and design of the possible product or process alternative.
d. Design, construction and testing of preproduction prototype model.
7. Development activities include all of the following, except
a. Design of tools, jigs, molds and dies involving new technology.
b. Design, construction and operation of a pilot plant that is not a scale economically feasible for
commercial production.
c. Design, construction and testing of a chosen alternative for a new improved product or process.
d. Laboratory activities aimed at obtaining new knowledge.
8. Which of the following is not one of the criteria which must be met before development costs can be
capitalized?
a. The entity has sufficient financial resources to complete the project.
b. The entity intends to complete the project and either use or sell the intangible asset.
c. The entity can reliably identify the research costs incurred to bring the project to economic
feasibility.
d. The project has achieved technical feasibility.
9. Which of the following costs should be capitalized?
a. Acquisition cost of equipment to be used on current research project only.
b. Engineering cost incurred to advance the product to the full production stage.
c. Cost of the research to determine whether a market for the product exists.
d. Salaries of research staff.
10. Which statement is true about development cost?
a. Development cost must be expensed.
b. Development cost is always deferred and expensed against future revenue.
c. Development cost may be capitalized as an intangible asset in very restrictive situation.
d. Development cost is recorded as component of other comprehensive income.
Problem 21-11 Multiple choice (IFRS)
1. Which statement in relation to research and development is incorrect?
a. Expenditure during the research phase of a project cannot be capitalized as an intangible asset.
b. Expenditure during the development phase of a project sometimes be capitalized as an
intangible asset.
c. The product being developed should have already been put into commercial production.
d. Development involves the application of research finding.
2. A dot-com has recently completed a highly publicized research and development project. Which
statement is the most accurate?
a. Cost incurred during the research stage can be capitalized.
b. Cost 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. Design of jigs and tools would qualify as research activities.
3. Which principle best describes the current method of accounting for research and development cost?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense
4. A research and development activity for which the cost would be expensed as incurred is
a. Design, construction and testing of preproduction prototype or model.
b. Quality control during commercial production.
c. Periodic designs changes to existing product.
d. Adaptation of an existing capability to a particular requirement or customer need.
Problem 21-12 Multiple choice (AICPA Adopted)
1. If an entity 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 performed under contract for others.
b. Development or improvement of technique and process.
c. Depreciation or immediate writeoff depending on policy.
d. An expense at such time as productive research has been obtained from the facility.
2. Which is a research and development cost?
a. Research and development performed under contract for others.
b. Development or improvement of technique and process.
c. Offshore oil exploration that is the primary activity of an entity.
d. Market research related to a major product of the entity.
3. Which is an example of an activity that would be excluded from research and development cost?
a. Quality control during commercial production.
b. Laboratory research aimed at discovery of new knowledge.
c. Design, construction and testing of preproduction prototype and model.
d. Testing in search for product or process alternative.
4. An activity that would be expensed currently as research and development is
a. Engineering follow-through in an early phase of commercial production.
b. Legal work in connection with patent application and the licencing of patent.
c. Testing in search for product or process alternative.
d. Adaptation of an existing capability to a particular requirement or customer need as a part of
continuing commercial activity.
5. At the beginning of the current year, an entity purchased equipment for the use in developing a new
product. The entity used the straight line depreciation method. The equipment could provide benefits over
a 10-year period. However, the new product development is expected to take 5 years and the equipment
can be used only for this project. The expense for the current year in relation to the equipment equals
a. The total cost of the equipment
b. One-fifth of the total cost of the equipment
c. One-tenth of the total cost of the equipment
d. Zero
6. Which research and development cost should be capitalized and amortized over current and future
period?
a. Labor and material costs incurred in constructing a prototype or model.
b. Cost of testing equipment that will also be used in another research and development project.
c. Administrative salaries allocated to research.
d. Research findings purchased from another entity to aid a particular research project currently in
process.
7. Which of the following costs should be excluded from research and development expense?
a. Modification of the design of a product.
b. Acquisition of research and development 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.
8. The proper accounting for costs incurred in creating computer software is
a. To capitalize all costs until the software is sold.
b. To charge research and development expense when incurred until technological feasibility has
been established for a product.
c. To charge research and development expense only if the computer software has alternative
future use.
d. To capitalize all costs incurred until a detailed program design or working model is created.
Problem 22-5 Multiple choice (PAS 40)
1. Which statement best describes investment property?
a. Property held for sale in the ordinary course of business.
b. Property held for use in the production and supply of goods and property held for
administrative purposes.
c. Property held to earn rentals or for capital appreciation.
d. Property held for capital appreciation.
2. An owner-occupied property is held by an owner
a. For use in the production of goods or services.
b. For administrative purposes.
c. For sale in the ordinary course of business.
d. For use in production of goods and services and for administrative purposes.
3. Investment property includes all of the following, except
a. Land held for capital appreciation
b. Land held for currently undetermined use
c. Building owned by the reporting entity leased out under an operating lease
d. Property held for sale in the ordinary course of business
4. Which of the following is an investment property?
a. Property being constructed or developed on behalf of third party.
b. Property that is being constructed and developed as investment property.
c. Property held for future development and subsequent use as owner-occupied property.
d. Owner-occupied property awaiting disposal.
5. An investment property shall be measured initially at
a. Cost
b. Cost less impairment
c. Depreciable amount les impairment
d. Fair value less impairment
6. Which statement is true if the property is partly investment and partly owner-occupied?
I. If the investment and owner-occupied portions could be sold or leased out separately, the
portions shall be accounted for separately as investment property and owner-occupied property.
II. If the investment and owner-occupied portions could not be sold or leased out separately, the
property is investment property if only an insignificant portion is held for manufacturing or
administrative purposes.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
7. If an entity owns and manages a hotel, services provide to guest are a significant component of the
arrangement as a whole. In such a case, the hotel is classified as
a. Investment property
b. Owner-occupied property
c. Partly investment property and partly owner-occupied property
d. Neither investment property nor partly owner-occupied property
8. Directly attributable expenditures related to investment property include
a. Professional fees for legal services, property transfer taxes and other transaction cost.
b. Start-up costs
c. Initial operating loss incurred before investment property achieves the planned level of
occupancy.
d. Abnormal amount of wasted material, labor and other resources incurred in constructing or
developing the property.
9. Which statement is true concerning property leased to an affiliate?
I. From the perspective if the individual entity that owns it, the property leased to an affiliate is
considered an investment property.
II. From the perspective of the affiliates as a group and for purposes of consolidated financial
statements, the property is treated as owner-occupied property.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
10. Which statement is incorrect in determining the fair value of an investment property?
a. An entity shall determine the fair value of investment property by deducting transaction cost
that may be incurred upon disposal.
b. The fair value of investment property shall reflect market conditions at the end of the reporting
period.
c. If an office is leased on a furnished basis, the fair value of the office generally includes the fair
value of the furniture because the rental income relates to the furnished office.
d. The fair value of investment property excludes prepaid or accrued operating lease income.

Problem 22-6 Multiple choice (IFRS)

1. Subsequent to initial recognition, the investment property shall be measured using
a. Fair value model or revaluation model
b. Fair value through profit or loss model
c. Cost model or fair value model
d. Cost model or revaluation model
2. If the entity uses the fair value model for the investment property, changes in fair value are
a. Recognized in profit or loss
b. Recognized in retained in earnings
c. Recognized in other comprehensive income
d. Not recognized
3. If the entity uses the fair value model for investment property, which statement is true?
a. The entity should value the property at cost less accumulated depreciation and impairment.
b. The entity should report the increase in fair value in other comprehensive income for the
period.
c. The entity depreciates the investment property.
d. The entity does not record depreciation.
4. Transfers from investment property to property, plant and equipment are appropriate
a. When there is change of use
b. Based on the discretion of management
c. Only when the entity adopts the fair value model
d. The entity can never transfer property into another classification once it is classified as
investment property.
5. Under IFRS, assets are classified as investment property are
a. Held for rental income
b. To be sold for a quick profit
c. Held for rental income or to be sold for a quick profit
d. Held for sale in the ordinary course of business
6. Which statement regarding investment property is correct?
a. If the entity elects the fair value model, no depreciation is taken.
b. Gain or loss from fair value adjustment is reported in the income statement.
c. If the entity elects the cost model, depreciation should be recognized.
d. All of these statement are correct regarding investment property.
7. An investment property is derecognized when
a. It is disposed to a third party
b. It is permanently withdrawn from use
c. No future economic benefits are expected from the disposal
d. In all of these cases
8. Gain or loss form disposal of investment property shall be determined as the difference between the
a. Net disposal proceeds and carrying amount
b. Gross disposal proceeds and carrying amount
c. Fair value and carrying amount of the asset
d. Gross disposal proceeds and fair value of the asset
9. Which disclosure must be made when the cost model is used for investment property?
a. The fair value of the property
b. The present value of the property
c. The value in use of the property
d. The net realizable value of the property
10. Which of the following disclosures shall be made when the fair value model has been adopted?
a. Depreciation method used
b. The amount of impairment loss recognized
c. Useful life
d. Net gains or losses from fair value impairment
Problem 22-7 Multiple choice (PAS 40)
1. When the entity uses the cost model, transfers between investment property, owner-occupied property
and inventory shall be made at
a. Fair value
b. Carrying amount
c. Cost
d. Assessed value
2. A transfer from investment property carried at fair value to owner-occupied property shall be accounted
for at
a. Fair value, which becomes the deemed cost
b. Carrying amount
c. Historical cost
d. Fair value less cost of disposal
3. If owner-occupied property is transferred to investment property that is to be carried a fair value, the
difference between the carrying amount and fair value shall be
a. Included in profit or loss
b. Included in retained earnings
c. Included in other comprehensive income
d. Accounted for as revaluation of property
4. If an inventory is transferred to investment property to be carried at fair value, the remeasurement to
fair value is
a. Included in profit or loss
b. Included in other comprehensive income
c. Included in retained earnings
d. Accounted for as revaluation surplus
5. When an investment property under construction is completed and carried at fair value, the difference
between the carrying amount and fair value shall be
a. Included in profit or loss
b. Included in retained earnings
c. Included in other comprehensive income
d. Accounted for as revaluation of property