9 Lecture - Intangible Assets – IAS 38 & Investment in Associates

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9 Lecture

MGT401

Midterm & Final Term Short Notes

Intangible Assets – IAS 38 & Investment in Associates

Intangible assets are assets without physical substance, such as patents, copyrights, and goodwill. IAS 38 is the International Accounting Standard that outlines how to account for intangible assets. Investment in associates is an equity investm


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Midterm & Finalterm Prepration
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  1. Under IAS 38, what is the maximum amortization period for intangible assets? a) 5 years b) 10 years c) 15 years d) 20 years Answer: b) 10 years

  2. Which of the following is an example of an intangible asset? a) Land b) Machinery c) Patents d) Inventory Answer: c) Patents

  3. Under IAS 38, how should research costs be treated? a) Expensed as incurred b) Capitalized as an intangible asset c) Recorded as a liability d) None of the above Answer: a) Expensed as incurred

  4. What is the accounting treatment for goodwill under IAS 38? a) Amortized over a period of 10 years b) Revalued annually c) Tested for impairment annually d) Written off immediately Answer: a) Amortized over a period of 10 years

  5. What is the maximum period for which goodwill can be amortized under IAS 38? a) 5 years b) 10 years c) 15 years d) 20 years Answer: b) 10 years

  6. Which of the following is not an example of an intangible asset? a) Trademark b) Copyright c) Investment in an associate d) Goodwill Answer: c) Investment in an associate

  7. What is an investment in associates? a) An equity investment in a company in which the investor has control b) An equity investment in a company in which the investor has significant influence c) A debt investment in a company d) None of the above Answer: b) An equity investment in a company in which the investor has significant influence

  8. How should an investment in an associate be accounted for under IAS 28? a) At cost less impairment b) At fair value c) Using the equity method d) None of the above Answer: c) Using the equity method

  9. What is the equity method of accounting? a) An accounting method that records an investment in an associate at cost b) An accounting method that records an investment in an associate at fair value c) An accounting method that records an investment in an associate at the investor's share of the associate's net assets d) None of the above Answer: c) An accounting method that records an investment in an associate at the investor's share of the associate's net assets

  10. Which of the following is not an example of an intangible asset that can be recognized under IAS 38? a) Brands b) Customer lists c) Goodwill d) Land Answer: d) Land



Subjective Short Notes
Midterm & Finalterm Prepration
Past papers included

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  1. What is an intangible asset, and how is it different from a tangible asset? Answer: An intangible asset is an asset that lacks physical substance, such as patents or trademarks, while a tangible asset has physical substance, such as machinery or buildings.

  2. Under IAS 38, what are the criteria for recognizing an intangible asset? Answer: The criteria for recognizing an intangible asset include that it is probable that future economic benefits will flow to the company and the cost of the asset can be reliably measured.

  3. How should internally generated intangible assets be accounted for under IAS 38? Answer: Internally generated intangible assets should only be recognized if certain criteria are met, including that the cost can be reliably measured and the future economic benefits are probable.

  4. How is goodwill accounted for under IAS 38? Answer: Goodwill is recognized as an intangible asset and amortized over its useful life, which is generally no longer than 10 years.

  5. What is an investment in associates, and how is it accounted for under IAS 28? Answer: An investment in associates is an equity investment in a company in which the investor has significant influence but not control. It is accounted for using the equity method.

  6. How is the investor's share of the associate's profits or losses accounted for under the equity method? Answer: The investor's share of the associate's profits or losses is recorded as a single line item on the investor's income statement.

  7. Can goodwill arise from an investment in an associate? Answer: Yes, goodwill can arise from an investment in an associate if the investor pays more than the share of the associate's net assets it acquires.

  8. What is impairment, and how is it determined for intangible assets and investments in associates? Answer: Impairment is the reduction in the value of an asset due to a decline in its future economic benefits. It is determined by comparing the asset's carrying value to its recoverable amount.

  9. What is the difference between the cost model and the revaluation model for intangible assets? Answer: The cost model records intangible assets at cost less any accumulated amortization or impairment losses, while the revaluation model records intangible assets at fair value less any accumulated amortization or impairment losses.

  10. How should an intangible asset with an indefinite useful life be accounted for under IAS 38? Answer: An intangible asset with an indefinite useful life should not be amortized but should be tested for impairment annually.

Intangible assets are non-monetary assets that lack physical substance, such as patents, trademarks, and copyrights. IAS 38 provides guidance on how to account for intangible assets, including the criteria for recognizing and measuring them. According to IAS 38, an intangible asset should be recognized if it is probable that future economic benefits will flow to the company and the cost of the asset can be reliably measured. Internally generated intangible assets should only be recognized if certain criteria are met, including that the cost can be reliably measured and the future economic benefits are probable. Goodwill, which arises when a company pays more than the fair value of net assets acquired in a business combination, is also recognized as an intangible asset and amortized over its useful life. Investment in associates refers to equity investments in companies in which the investor has significant influence but not control. Under IAS 28, an investor accounts for an investment in associates using the equity method, which records the investor's share of the associate's profits or losses as a single line item on the investor's income statement. Impairment refers to the reduction in the value of an asset due to a decline in its future economic benefits. For intangible assets and investments in associates, impairment is determined by comparing the asset's carrying value to its recoverable amount. There are two models for accounting for intangible assets: the cost model and the revaluation model. The cost model records intangible assets at cost less any accumulated amortization or impairment losses, while the revaluation model records intangible assets at fair value less any accumulated amortization or impairment losses. Intangible assets with an indefinite useful life, such as trademarks, should not be amortized but should be tested for impairment annually. Investment in associates can also result in the recognition of goodwill if the investor pays more than the share of the associate's net assets it acquires. Overall, proper accounting for intangible assets and investments in associates is crucial for ensuring accurate financial reporting and decision making.

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