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

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.

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.

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.

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

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.