Assignment:
PART 1 - Multiple choice questions
1. During the 2020 year, Kanat Inc decided to expand its activities in the food industry. It purchased a well-known fast-food franchise for € 1.000.000 on June 30, 2020. The franchise is recognized throughout Europe and Kanat Inc obtained the right to use the franchise for a period of 20 years in Italy. It is probable that future economic benefits will flow from franchise. Which of the following statements are correct?
a. The franchise is not an intangible asset and the cost of € 1.000.000 should be expensed immediately in profit or loss.
b. The franchise, even though it is identifiable, is not an intangible asset because it has physical substance in the form of a franchise certificate.
c. The franchise is an intangible asset as it is identifiable and has no physical substance.
d. The franchise cost can be reliably measured at € 1.000.000 and it is probable that Kanatwill generate revenue from its use and therefor it is an asset.
e. Kanat controls the franchise through the legal right to use the franchise over the period of 20 years.
2. Which of the following statements are correct regarding the recognition of an internally generated asset?
a. Expense incurred in the research phase are capitalised as part of the cost of an intangible asset.
b. The technical feasibility of completing the intangible asset so that it will be available for use or sale needs to be proved.
c. The ability to use or sell the intangible asset exists.
d. Only costs in the development phase are capitalized as part of the cost of the intangible asset.
e. There must be an intention to use or sell the intangible asset.
f. An internally generated intangible asset is not recognised as an asset and all costs incurred are expensed.
3. An acquired trademark with a cost of €10.000 is used by an entity to identify and distinguish a leading consumer product that has been a market-share leader for eight years. The remaining legal life is five years, but it is renewable every ten years at a cost of €1.000. The entity intends to continuously renew the trademark and evidence supports its ability to do so. Cash flows are expected to be generated on an ongoing basis. What is the useful life of the trademark?
a. The remaining five years
b. 13 years
c. 10 years
d. Indefinite
e. 15 years.
questions:
1. Which statements are correct regarding how intangible assets are identified:
a. An intangible asset must be identifiable to distinguish it from good will.
b. An intangible asset can arise from contractual or legal rights.
c. An intangible asset need not to be distinguishable from goodwill and can form part of goodwill.
2. The WheelSat project can be recognized as an intangible asset if, and only if:
- It is identifiable
- There is control over the resource
- It is probable that................................. from intangible asset will be obtained, and
- The ......................... of the asset can be ........................
Choose from the words below the correct ones to fill in the blanks:
Future economic benefits
3. Which of the following situations will give rise to an intangible asset being removed from the statement of financial position?
a. The entity sells the intangible asset to one of its main competitors.
b. The entity no longer uses the intangible asset for its intended purpose.
c. No more future economic benefits are expected from the intangible asset's use or disposal.
d. The intangible asset is donated to a charity organization.
4. Which of the following items are recognized as intangible assets?
a. A broadcasting license.
b. A newspaper masthead.
c. An internally generated customer list.
d. A company's brand name that has been built up through customer loyalty and is valuable and well known by the general public.
5. Lucy's Ltd. was established in 2013 to sell Mexican food in three restaurants. Innovative advertising coupled with high quality food quickly established the name of Lucy's at the front of restaurant chains in South Africa. In 2015, it was decided to name the franchise Lucy's and to register the name as trademark. The franchises are sold and fees of 5% of revenue are paid to Lucy's Ltd. Which of the following statements are correct when Lucy's Ltd determines whether the trademark "Lucy's" can be recognized as an intangible asset in accordance with IAS 38?
a. The trademark should be controlled by Lucy's Ltd.
b. The trademark should be a result of a past event.
c. Probable future economic benefits i.e., the franchise fees will flow to Lucy's Ltd.
d. The trademark has a cost, being the amount paid for registration.
6. Alpha Communication purchased a broadcasting license from local government to operate a radio station in one of its counties. Which of the following costs is not included in the costs of the broadcasting license?
a. The price paid to the government for the license.
b. Advertisements and marketing costs to promote the new radio station.
c. Lawyers' fee paid for the contractual work surrounding the license.
7. Omega Inc. started a project to create a new drug on April 1, 2017. The development phase commenced on July 1, 2018 and the drug was ready for its intended use on July 1, 2019. Costs were incurred in each phase (Research - €243.350 and Development - €426.250). The registered patent on the drug is five years and there is no intention to renew the patent. Omega's year end is in June 30, 2020. What is the amortization of the drug for the 2020 financial year?
a. 29.600
b. 35.520
c. 55.800
d. 85.250
8. Which of the following statements are incorrect in terms of the derecognition of intangible assets?
a. Gains or profit on derecognizing an intangible asset are recognized as revenue.
b. An intangible asset is derecognized on disposal.
c. An intangible asset is derecognized when no future economic benefits are expected from its use or disposal.
d. Gains or a profit on derecognizing an intangible asset are recognized in profit or loss.
Case study WR Technologies
SCENARIO 1
WR Technologies is a company involved in the manufacture and assembly of technological products used in motor vehicles. The company has commenced a project called WheelSat. The project involves the design, development and production of a new satellite navigation system for motor vehicles, and the company intends to market and distribute the system throughout USA and Europe.
You have just begun work as the accountant at WR Technologies.
a. First of all you have to answer to the following
b. Monetary benefits
c. Resources
d. Cost
e. Value
f. Measured reliably
g. Fair value
3. Which of the following are ways in which an intangible asset, for example a patent, can arise:
a. A company purchases a registered patent.
b. A company researches, develops and registers a patent on a product.
c. Local government grants a patent to a company.
d. A patent is a part of the allocated assets and liabilities in an acquired business.
e. Company A exchanges the right of its use of a railway line for a patent with Company B.
Your second task is to determine and explain how to account for the project - you need to consider:
• What type of an intangible asset it is.
• What factors are taken into account in determining the research and development phases of the project.
• When the project is in its research phase and when it is in its development phase.
• What costs are included in and excluded from the cost of the intangible asset.
After reading the progress report below(includes all the costs incurred to date and the stages of the project) explain what type of intangible asset WheelSat is and how can determine whether a project is in the research or development phase
WHEELSAT PROJECT-PROGRESS REPORT
A separate division has been set up to deal with the WheelSat operation to distinguish the project from other operations within JR Technologies. Separate accounting records are kept for the project.
The following are the stages and costs incurred to date for each stage of the project:
• Market research was performed by the marketing and finance departments to determine whether there is a need for a satellite navigation system for vehicles. Costs to the value of €125,000 were incurred by the marketing department. The findings of the research showed that a market exists, and that JR Technologies has the ability and intention to sell the product.
• From the findings of the research, two prospective products and designs were formulated, one being the WheelSat and the other the DriveSat. Costs to the value of €187,250 were incurred in the formulation and design of the products.
• The WheelSat and DriveSat product designs were evaluated and it was identified that the
WheelSat product would be developed and distributed. Costs to the value of €34,350 were incurred.
• Business plans that specified the following have been formulated:
1. Costs anticipated in completing the product.
2. Cash flows from the intended sale of the product.
3. The intention to complete the WheelSat project and use the product in certain motor vehicles.
4. The marketing and selling plans of the WheelSat division.
• The design and production of the WheelSat product commenced and a first version of the product has been completed. Costs to the value of €719,750 were incurred at this stage.
• The WheelSat was tested and costs to the value of €230,000 were incurred.
• The test results indicated minor flaws in the product. The flaws were rectified and the final product has been tested. Costs to the value of €125,250 were incurred.
• Employees were sent on sales training courses so they are able to sell the navigation system effectively. Each training course costs €11,500 per session and three sessions have been held so far.
SCENARIO 2
1. It is one month before year-end. The WheelSat product has been a remarkable success. The CEO informs you that WheelSat has been registered as a patent and the company has successfully marketing and distributing it. No transaction for WheelSat has taken place and the company is not willing to sell the asset. Do they have to carry the original intangible asset at cost or revalue it?
2. Which of the following subsequent accounting treatments for intangible asset are permitted under IAS 38?
a. Carried at cost.
b. Carried at cost less any accumulated amortization and any impairment losses.
c. Carried at revalued amount i.e., the fair value at the date of revaluation.
d. Carried at revalued amount i.e., the fair value less any amortization and any impairment losses.
3. What are the requirements for using the revaluation model? Fill in the blanks by using the correct options from the table below.
WR Technologies can choose either the cost model or the revaluation model in accounting for intangible assets.
............................... for WheelSat ........................ and therefor the ............................ should be used. WheelSat should then recognized at .......................................... less any accumulated amortization and any impairment losses.
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A monopoly
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exists
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A competitive market
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Does not exist
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An active market
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Market price
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Fair value
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Cost
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Cost model
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Revaluation model
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Determining the useful life of WheelSat
4. Which of the following factors should be taken into account in determining the useful life of WheelSat?
a. Management expects and plans to manufacture and distribute WheelSat for the next three years.
b. Similar satellite navigation system have a normal life cycle of five years before a newer sophisticated system is developed and enters the market.
c. The patent for WheelSat is registered for four years.
d. The amortization rates of the other assets in the entity.
e. Thevolatility of the navigation system industry.
f. The average useg=ful life of the type of motor vehicle WheelSat will be used in.
Amortization Calculation for WheelSat
Details
WheelSat Project - details .
• The WheelSat project was started on April 1, 2014.
• Year-end for WR Technologies is March 31, 2015.
• The WheelSat was ready for use on February 1, 2015.
• The development phase of the WheelSat project commenced on July 1, 2014.
• The intended useful life of WheelSat is 3 years.
• Costs incurred during the research phase were €346,600.
• Costs incurred during the development phase were €1,075,000.
5. Complete the passage below:
The effective date the WheelSat project should be amortized from is ..................
The value at which WheelSat is recognized is .................................
The period of the amortization is ................
The amortization for WheelSat for the 2015 financial year is ........................
Attachment:- Case Study.rar