CPA Financial Accounting and Reporting (FAR) : Intangible Assets
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #1 : Intangible Assets
Which of the following is correct regarding accounting for patent costs?
Most costs incurred to generate a patent internally will be expensed
Legal costs incurred to defend a patent will be capitalized but only if the legal proceedings are unsuccessful
Legal costs incurred to defend a patent will be expensed but only if the legal proceedings are successful
Fees to purchase an existing patent from another party are expensed
Most costs incurred to generate a patent internally will be expensed
Most costs incurred to generate a patent internally will be expenses; however, legal costs to defend an existing patent will be capitalized if the legal proceedings are successful. When an existing patent is purchased from another party, that cost is capitalized.
Example Question #2 : Intangible Assets
Which of the following is correct regarding costs associated with goodwill?
Costs to develop and maintain goodwill are capitalized in the goodwill account
Companies can elect to amortize goodwill if goodwill is generated internally
Goodwill is capitalized and amortized over 40 years
Costs to develop and maintain good are expensed
Costs to develop and maintain good are expensed
Costs to develop and maintain goodwill be expensed, not capitalized. Goodwill itself is capitalized but not amortized.
Example Question #3 : Intangible Assets
Pop Co purchases a patent in Year 1 from another organization at the cost of $100,000. In Year 3, Pop Co defended its patent in a law suit, during which it spent $20,000 in legal fees. Pop Co was successful in defending the patent. The entry to record the $20,000 in legal fees should include which of the following?
A debit to legal expenses of $20,000
An allocation between legal expenses and an intangible asset
A debit to an intangible asset for $20,000
A debit to amortization expense for $20,000
A debit to an intangible asset for $20,000
Costs incurred to defend a patent will be capitalized if the lawsuit is successful. Therefore, the entry to record these costs will include a debit to an intangible asset.
Example Question #3 : Intangible Assets
Under IFRS rules, which of the following statements about intangible assets is correct?
Internally generated goodwill cannot be recognized as an asset
Intangible assets within a class may be measured differently using either the cost model or the revaluation model
R&D costs are capitalized as incurred
Intangible assets with indefinite lives must be amortized annually
Internally generated goodwill cannot be recognized as an asset
Internally generated goodwill cannot be capitalized and is treated as an expense in the period incurred.
Example Question #4 : Intangible Assets
Are routine efforts to improve an existing product considered R&D expenses?
They are not considered R&D expenses
They are capitalized
These expenses are amortized are incurred
They are considered R&D expenses
They are not considered R&D expenses
Routine expenses to maintain a product that already exists could not be R&D as the product is technologically feasible.
Example Question #5 : Intangible Assets
A long lived asset should be tested for recoverability:
When carrying value is less than fair market value
When the FMV has decreased permanently
When circumstances change which indicate that the carrying amount may not be recoverable
When the company financial statements are ready
When circumstances change which indicate that the carrying amount may not be recoverable
Carrying amounts of fixed long term assets should be tested for recoverability no less than annually or when circumstances indicate a possible permanent change in carrying amount.
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