1. Which of the following does not describe intangible assets? a. They lack phys
ID: 2415267 • Letter: 1
Question
1. Which of the following does not describe intangible assets?
a. They lack physical existence.
b. They are financial instruments.
c. They provide long-term benefits.
d. They are classified as long-term assets.
2. Which intangible assets are amortized?
Limited Life Indefinite Life
a. Yes Yes
b. Yes No
c. No Yes
d. No No
a
b
c
d
3. Which of the following is often reported as an extraordinary item?
a. Amortization expense
b. Impairment losses for intangible assets other than goodwill
c. Impairment losses on goodwill
d. None of the above
Explanation / Answer
1. Intangible assets are assets that lack physical existence and are not financial instruments.
They are not financial instruments. Assets such as bank deposits, accounts receivable, and long-term investments in bonds and stocks lack physical substance, but are not classified as intangible assets. These assets are financial instruments and derive their value from the right or claim to receive cash or cash equivalents in the future.
2. b)
Limited-life intangibles are intangible assets with a limited useful life (e.g. copyrights, patents). Limited-life intangibles are systemically amortized throughout the useful life of the intangible asset using either units of activity method or straight-line method. The amortization amount equals the different between the intangible asset cost and the asset residual value. The owner of the intangible asset, in this case, either credits the appropriate intangible asset account or the appropriate accumulated amortization account.
On the other hand, indefinite-life intangibles are not amortized because there is no foreseeable limit to the cash flows generated by the intangible asset. Such intangible assets have no legal, contractual, regulatory, economic, or competitive limiting factors. Indefinite-life intangibles, nevertheless, are subject to an impairment test that should be performed at least annually. Examples of indefinite-life intangibles are: goodwill, trademarks, perpetual franchises, etc.
3. d) None of the above
An extraordinary item in accounting is an event or transaction that is considered abnormal, not related to ordinary company activities, and unlikely to recur in the foreseeable future. The formal use of extraordinary items has recently been eliminated under Generally Accepted Accounting Principles (GAAP), so the following discussion should be considered historical in nature.
GAAP specifically stated that write-offs, write-downs, gains, or losses on the following items were not to be treated as extraordinary items:
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