Luke Hodges
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Financial Reporting 1st ed., Chapter 6 End of Chapter comprehension questions

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Luke Hodges
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ACC210 Financial Accounting: Week 4, Intangibles, Chapter 6 Comprehension Questions

Frage 1 von 11

1

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What are the key characteristics of an intangible asset?
: it must be able to be separable from the entity, and transferrable through market trade so as to exclude many possible intangibles that are difficult to measure e.g. staff morale, good customer relations. or legal or contractual rights which benefit a company.
-: this characteristic excludes financial assets such as loans receivables from being classified as intangibles.
: excludes items of physical substance, as defined in AASB 116 (PP&E)

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Frage 2 von 11

1

Fülle die Lücken, um den Text zu vervollständigen.

Explain what is meant by ‘identifiability’.

Para of AASB states
An asset meets the identifiability criterion in the definition of an intangible asset when it:
(a) is , i.e. is capable of being or from the entity and s, t, l, r or e, either individually or together with a related contract, asset or liability; or
(b) arises from c or other l r, regardless of whether those rights are t or separable from the entity or from other rights and obligations.

(a) excludes , and other possible assets such as staff morale
(b) is included to allow such assets as water rights, where these were allocated by a government but if not used were unable to be on-sold and so were not separable, to be classified as intangible assets

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Frage 3 von 11

1

How do the principles for amortisation of intangible assets differ from those for depreciation of PP&E?

• Basic principle of of the on a over useful life is the same.
• With intangibles, - method is the default method where the of of
cannot be reliably determined. Not the same with PP&E.
• With intangibles can have lives. Not the same with PP&E.
• With intangibles with finite lives, residual value is assumed to be , unless para criteria are met:
(a) there is a by a third party to the asset at the end of its ; or
(b) there is an active for the asset and:
(i) can be determined by reference to that market; and
(ii) it is probable that such a market will exist at the end of the asset’s useful life.
Not so for PPE.

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    systematic
    basis
    allocation
    depreciable
    amount
    straight
    line
    pattern
    receipt
    benefits
    indefinite
    zero
    100
    commitment
    purchase
    useful
    life
    market
    residual
    value

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Frage 4 von 11

1

How is the useful life of an intangible asset determined?

Useful life must be assessed as or . Paragraph 90 states:

Many factors are considered in determining the useful life of an intangible asset, including:
(a) the of the asset by the entity and whether the asset could be by
another management team;
(b) typical product for the asset and public information on estimates of of
assets that are in a similar way;
(c) technical, technological, commercial or other types of ;
(d) the of the in which the asset operates and changes in the for the
products or services from the asset;
(e) expected by or potential competitors;
(f) the level of required to obtain the expected future from the
asset and the entity's ability and intention to reach such a level;
(g) the of over the asset and legal or similar on the use of the asset, such as the expiry
dates of related leases; and
(h) whether the useful life of the asset is on the useful life of other assets of the entity.

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    finite
    indefinite
    expected
    usage
    managed
    efficiently
    life
    cycles
    useful
    lives
    similar
    used
    obsolescence
    stability
    industry
    output
    market
    demand
    actions
    competitors
    maintenance
    expenditure
    economic
    benefits
    period
    control
    limits
    dependent

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Frage 5 von 11

1

Fülle die Lücken, um den Text zu vervollständigen.

What intangible assets can never be recognised if internally generated? Why?

Paragraph states:

Internally generated b, m, p t, c l and items similar in substance shall not be recognised as intangible assets.

Paragraph gives the reason:

Expenditure on internally generated b, m, p t, c l and items similar in substance cannot be d from the cost of d the business as a whole. Therefore, such items are not recognised as intangible assets.

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Frage 6 von 11

1

Explain the difference between ‘research’ and ‘development’.

Paragraph 8 contains the following definitions:

Research is and undertaken with the prospect of new or knowledge and understanding.

Development is the of research or other knowledge to a or for the of new or substantially improved m, d, p, p, s or s before the start of commercial production or use.

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    original
    planned
    investigation
    gaining
    scientific
    technical
    application
    findings
    plan
    design
    production
    aterials
    evices
    roducts
    rocesses
    ystems
    ervices

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Frage 7 von 11

1

Fülle die Lücken, um den Text zu vervollständigen.

Paragraph 56 gives examples of research activities:

(a) activities aimed at obtaining n k;
(b) the s for, evaluation and final selection of, a of research findings or other knowledge;
(c) the search for alternatives for m, d, p, p, s or services; and
(d) the f, d, e and final selection of possible alternatives for new or improved m, d, p, p, s or services.

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Frage 8 von 11

1

Para gives examples of development activities:

(a) the design, and of pre- or pre- and ;
(b) the of t, j, m and d involving new technology;
(c) the design, construction and of a that is not of a scale economically for production; and
(d) the design, construction and testing of a for new or improved materials, devices, products, processes, systems or services

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    59
    construction
    testing
    production
    use
    prototypes
    models
    design
    ools
    igs
    oulds
    ies
    operation
    pilot
    plant
    feasible
    commercial
    chosen
    alternative

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Frage 9 von 11

1

Explain when development outlays can be realised as an asset .

Paragraph 57 states that when ALL the following are met, an intangible asset can be recognised from development outlays:

(a) the of the intangible asset so that it will be available for or .
(b) its to the intangible asset and use or sell it.
(c) its to use or sell the intangible asset.
(d) how the intangible asset will probable . Among other things, the entity can demonstrate the existence of a for the of the intangible asset or the intangible asset itself or, if it is to be used , the of the intangible asset.
(e) the availability of adequate technical, and other to complete the development and to use or the intangible asset.
(f) its ability to the to the intangible asset during its development.

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    recognition
    criteria
    technical
    feasibility
    completing
    use
    sale
    intention
    complete
    ability
    generate
    future
    economic
    benefits
    market
    output
    internally
    usefulness
    financial
    resources
    sell
    measure
    reliably
    expenditure
    attributable

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Frage 10 von 11

1

Fülle die Lücken, um den Text zu vervollständigen.

Explain how intangible assets are initially measured, and whether the measurement differs dependent on whether the assets are acquired in a business combination or internally generated by an entity.

Paragraph states that an intangible asset must be initially measured at .

When internally generated, is based upon of development costs.

When acquired in a business combination, cost is measured as the of the asset at , and a hierarchy of measures of fair value is available.

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Frage 11 von 11

1

Fülle die Lücken, um den Text zu vervollständigen.

What are the recognition criteria for intangible assets?

Paragraph states:

An intangible asset shall be recognised if, and only if:
(a) it is p that the e f e b that are a to the asset will flow to the entity; and
(b) the cost of the asset can be m r.

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