Question 11

True or False

An intangible asset must be identifiable to qualify for recognition under IAS 38.

Answer: True

Explanation:

Identifiability is one of the essential characteristics of an intangible asset under IAS 38. An asset is identifiable if it can be separated from the entity and sold, transferred, licensed, or exchanged, or if it arises from contractual or legal rights. This requirement distinguishes intangible assets from internally generated goodwill, which cannot be separated from the business and therefore does not qualify for separate recognition.

Question 12

True or False

Internally generated customer lists are generally recognized as intangible assets under IAS 38.

Answer: False

Explanation:

IAS 38 specifically prohibits the recognition of internally generated customer lists because their cost cannot be measured reliably and they cannot be distinguished from the cost of developing the business as a whole. Although customer relationships may provide significant future economic benefits, internally generated customer lists are expensed as incurred. However, customer lists acquired through a business combination or separate purchase may qualify for recognition.

Question 13

True or False

Finite-life intangible assets should be amortized over their estimated useful lives.

Answer: True

Explanation:

Finite-life intangible assets provide economic benefits over a limited period. Therefore, their cost is allocated systematically through amortization over the estimated useful life. The amortization method should reflect the pattern in which the asset’s economic benefits are consumed. If that pattern cannot be determined reliably, the straight-line method is generally used. The useful life and amortization method should also be reviewed at least annually.

Question 14

True or False

An intangible asset with an indefinite useful life should be tested annually for impairment.

Answer: True

Explanation:

Unlike finite-life intangible assets, indefinite-life intangible assets are not amortized because there is no foreseeable limit to the period over which they are expected to generate economic benefits. Instead, IAS 36 requires these assets to undergo an annual impairment test, regardless of whether impairment indicators exist. Additional impairment testing is also required whenever events or circumstances suggest that the asset’s value may have declined.

Question 15

True or False

The useful life of an intangible asset never changes after initial recognition.

Answer: False

Explanation:

The useful life of an intangible asset is an accounting estimate and must be reviewed at least at the end of each reporting period. Technological developments, changes in customer demand, legal modifications, or increased competition may shorten or extend the expected useful life. If management revises its estimate, the change is treated prospectively as a change in accounting estimate rather than as an error correction.

Question 16

True or False

A company may capitalize advertising costs if they are expected to increase future sales.

Answer: False

Explanation:

Advertising and promotional expenditures must generally be recognized as expenses when incurred, even if they are expected to increase future sales or strengthen the company’s brand. IAS 38 does not permit capitalization because these expenditures do not create an identifiable asset that the company can control independently. Future economic benefits are often uncertain and cannot be measured reliably at the time the costs are incurred.

Question 17

True or False

Purchased software is generally classified as an intangible asset.

Answer: True

Explanation:

Software acquired separately is usually recognized as an intangible asset because it lacks physical substance and provides future economic benefits through its use. The software is initially measured at acquisition cost, including directly attributable implementation costs. If the software has a finite useful life, it is amortized over that period. Only software that is an integral part of specific hardware is typically included within property, plant, and equipment.

Question 18

True or False

An active market is required to recognize every intangible asset.

Answer: False

Explanation:

An active market is not required for the initial recognition of an intangible asset. Recognition depends on whether the asset is identifiable, expected to generate future economic benefits, and has a reliably measurable cost. An active market becomes relevant only if a company chooses the revaluation model under IAS 38. Since active markets for intangible assets are rare, most entities continue to use the cost model.

Question 19

True or False

An impairment loss recognized for goodwill may be reversed if the business recovers in value.

Answer: False

Explanation:

Under IAS 36, impairment losses recognized for goodwill cannot be reversed in subsequent periods, even if the value of the acquired business increases significantly. This rule prevents entities from recognizing internally generated goodwill after acquisition. While impairment losses for certain other assets may be reversed when appropriate, goodwill is treated differently because its value cannot be measured separately from the overall business.

Question 20

True or False

An intangible asset acquired separately is initially measured at cost.

Answer: True

Explanation:

IAS 38 requires separately acquired intangible assets to be recognized initially at cost. The cost includes the purchase price, non-refundable taxes, legal fees, registration costs, and other expenditures directly attributable to preparing the asset for its intended use. Measuring the asset at historical cost provides a reliable basis for subsequent accounting, including amortization, impairment testing, and eventual derecognition.

Intangible Assets Quiz: True or False Section

1. Under IAS 38, all internally generated intangible assets must be expensed as incurred without exception.

• Answer: FALSE

• Explanation: While IAS 38 strictly prohibits the capitalization of internally generated brands, customer lists, mastheads, and research phase costs, it does allow (and require) the capitalization of internally generated intangible assets during the development phase. For capitalization to occur, the entity must demonstrate that the project meets six specific criteria, often summarized by the acronym PIRATE. These criteria include proving the technical feasibility of completing the asset, the availability of adequate resources to finish it, and the clear probability of generating future economic benefits.

2. An intangible asset must be identifiable, meaning it can be separated from the entity or arises from contractual or legal rights.

• Answer: TRUE

• Explanation: Identifiability is a core requirement that distinguishes a standard intangible asset from goodwill. Under both IFRS and US GAAP, an asset meets the identifiability criterion if it is separable—meaning it can be divided, rented, sold, or exchanged individually from the business. Alternatively, it is identifiable if it arises from contractual or other legal rights (such as a patent or franchise license), regardless of whether those rights are transferable or separable from the entity itself.

3. Under US GAAP, research and development (R&D) costs incurred under a contract for a third party are expensed as incurred.

• Answer: FALSE

• Explanation: While US GAAP (ASC 730) mandates that an entity’s internal R&D costs must be expensed immediately, this rule does not apply to R&D performed for others under a specific contractual agreement. When a company conducts R&D activities on behalf of a third party, those costs are accounted for as reimbursable contract costs or inventory under revenue recognition standards (ASC 606). The performing entity records these expenses to match against the contract revenue generated, rather than taking an immediate R&D expense hit.

4. Intangible assets with indefinite useful lives are subject to regular amortization over a maximum period of 40 years.

• Answer: FALSE

• Explanation: By definition, an intangible asset with an indefinite useful life has no foreseeable limit to the period over which it is expected to generate net cash inflows for the business. Because there is no determinable lifespan, calculating a systematic periodic amortization is mathematically impossible and conceptually incorrect. Instead of being amortized, accounting standards mandate that these assets (such as goodwill or perpetual trademarks) must be tested for impairment at least annually, or more frequently if a triggering event occurs.

5. Purchased goodwill can be reliably measured because its valuation is based on an arm’s-length market transaction.

• Answer: TRUE

• Explanation: Purchased goodwill arises from an actual business combination where one company acquires another. It is calculated objectively as the excess of the purchase price paid over the aggregate fair value of the identifiable net assets acquired. Because this value is established through an objective, arm’s-length market transaction between two independent parties, it satisfies the accounting criteria for reliable measurement and control, allowing it to be officially capitalized on the parent company’s balance sheet.

6. Internally generated goodwill can be recognized as an asset if its value can be estimated by an independent appraiser.

• Answer: FALSE

• Explanation: Internally generated goodwill can never be recognized as an asset under any accounting framework, regardless of whether an independent appraiser estimates its value. It fails the strict recognition criteria because it is not an identifiable resource that can be separated from the business as a whole, nor does it arise from specific contractual rights. Furthermore, its cost cannot be measured reliably because the expenditures cannot be distinguished from the everyday costs of developing and running the business.

7. The cost model requires an intangible asset to be carried at its cost less any accumulated amortization and any accumulated impairment losses.

• Answer: TRUE

• Explanation: The cost model is the most widely used benchmark treatment for intangible assets after initial recognition. Under this model, once the asset is initially recorded at its historical cost, it is systematically reduced over time by accumulated amortization (if it has a finite life). Additionally, if the asset’s economic value permanently declines, it is further reduced by any accumulated impairment losses. The resulting net book value represents the asset’s carrying value on the balance sheet.

8. Under IFRS, the revaluation model can be applied to any intangible asset, even if there is no active market for it.

• Answer: FALSE

• Explanation: Under IAS 38, the revaluation model is permitted, but it comes with a major restriction: the fair value of the intangible asset must be determined strictly by reference to an active market. Active markets are highly uncommon for intangible assets because items like patents, unique software programs, and secret formulas are inherently unique and rarely traded publicly. Therefore, while legally allowed, the revaluation model cannot be applied to most intangibles due to the complete lack of active market price data.

9. A finite-life intangible asset’s residual value is automatically assumed to be zero unless a third party has committed to buying it.

• Answer: TRUE

• Explanation: Accounting standards assume that the residual value of a finite-life intangible asset is zero at the end of its useful life. This is because intangibles typically hold no scrap or physical salvage value. There are only two exceptions to this rule: 1) a third party has a binding commitment to purchase the asset at the end of its life, or 2) there is an active market for the asset from which its residual value can be determined, and it is highly probable that this market will still exist at the end of the asset’s lifespan.

10. Amortization of an intangible asset always begins when the asset is registered legally, regardless of when it is available for use.

• Answer: FALSE

• Explanation: The amortization period for a finite-life intangible asset does not depend on its legal registration date. Instead, amortization officially begins when the asset becomes “available for use.” This is defined as the moment the asset is in the specific location and operational condition necessary for it to function in the manner intended by management. Even if legal registration occurs earlier or later, the operational readiness of the asset is what triggers the start of the matching process via amortization.

11. If an intangible asset is determined to have an impairment, its carrying amount is written down directly to its fair value under IFRS.

• Answer: FALSE

• Explanation: Under IFRS (IAS 36), an impaired asset is written down to its “recoverable amount,” which is not strictly its fair value. The recoverable amount is defined as the higher of two different metrics: 1) Fair Value Less Costs of Disposal (net selling price) and 2) Value in Use (the discounted present value of the future cash flows expected from continuing to use the asset). Writing it down solely to fair value could result in an incorrect valuation if the value in use is higher.

12. Under US GAAP, private companies have an accounting alternative that allows them to amortize goodwill straight-line over a period not exceeding 10 years.

• Answer: TRUE

• Explanation: To reduce financial reporting costs and complexity for non-public entities, the Financial Accounting Standards Board (FASB) introduced an optional accounting alternative for private companies and non-profit organizations. Under this option, these entities can choose to bypass the expensive annual goodwill impairment test. Instead, they are permitted to amortize goodwill using the straight-line method over a standard period of 10 years, or less if the company proves a shorter useful life is more appropriate.

13. A patent’s amortization period can exceed its legal life if the company plans to use it longer.

• Answer: FALSE

• Explanation: The amortization period for an intangible asset must reflect its useful economic life, but it is strictly capped by its remaining legal life. A patent grants exclusive legal rights for a fixed timeframe (e.g., 20 years in the US). Once that legal window closes, competitors can freely copy the technology, completely wiping out the asset’s exclusive economic benefits. Therefore, a company cannot legally or logically amortize a patent beyond its statutory expiration date.

14. Computer software developed for internal use must be capitalized from the very beginning of the project under US GAAP.

• Answer: FALSE

• Explanation: US GAAP (ASC 350-40) breaks internal-use software development into three distinct chronological phases. Capitalization is strictly prohibited during the initial phase, known as the Preliminary Project Stage, which involves conceptual formulation, evaluation of alternatives, and strategic decision-making. Costs can only begin to be capitalized as an intangible asset once the project enters the second phase, the Application Development Stage, which includes actual coding, hardware installation, and testing.

15. Under IFRS, an impairment loss recognized on goodwill can be reversed in a subsequent period if the business unit recovers its value.

• Answer: FALSE

• Explanation: Both IAS 36 and US GAAP absolutely forbid the reversal of a previously recorded impairment loss on goodwill. Once goodwill is written down, that loss is permanent. The reasoning is that any subsequent recovery or increase in the business unit’s value is considered a creation of internally generated goodwill. Since accounting standards strictly prohibit recognizing internally generated goodwill, allowing a reversal would violate this fundamental rule.

16. Artistic-related intangible assets, such as copyrights, protect ownership rights to creative works and are amortized over their useful lives.

• Answer: TRUE

• Explanation: Artistic-related intangible assets involve intellectual property rights over creative, literary, musical, or visual works. These are protected by legal copyrights. When a company purchases or capitalizes a copyright, it represents a finite-life asset. The cost must be systematically amortized over the shorter of its estimated useful economic life or its legal life, matching the amortization expense against the revenues generated from reproducing and distributing the creative work.

17. Trade secrets and secret formulas are examples of technology-based intangible assets.

• Answer: TRUE

• Explanation: Technology-based intangible assets relate directly to technical innovations, operational systems, and proprietary knowledge developed or acquired by a firm. Common examples include computer software, databases, patented technologies, trade secrets, and secret formulas (such as the proprietary recipe for Coca-Cola). If these assets are legally protected or separable from the business, their acquisition costs are capitalized and categorized under this specific functional grouping.

18. If a company unsuccessfully defends a patent in a lawsuit, the remaining carrying value of the patent should continue to be amortized.

• Answer: FALSE

• Explanation: If a legal defense of an intangible asset like a patent is unsuccessful, it means the company has legally lost its exclusive right to control and use that technology. Because the asset can no longer exclude competitors or guarantee exclusive future economic benefits, it fails to meet the basic definition of an asset. Therefore, the remaining net book value of the patent must be immediately written off completely as a loss in the income statement.

19. Under US GAAP, successful legal defense costs for a patent are expensed immediately as legal fees.

• Answer: FALSE

• Explanation: Under US GAAP, legal fees incurred to successfully defend an intangible asset in court are capitalized to the asset’s carrying value. This is because a successful defense legally establishes and protects the validity of the asset, preserving its future economic benefit to the firm. Conversely, under IFRS, these costs are typically expensed because they are viewed as maintaining the asset at its original expected performance level rather than increasing its economic utility.

20. Customer lists acquired in a business combination are recorded as independent intangible assets if they are separable.

• Answer: TRUE

• Explanation: When one company buys another, any acquired customer lists or databases are recognized as distinct intangible assets at fair value, provided they meet the identifiability criterion. A customer list is considered identifiable because it is separable—meaning it can be rented, sold, leased, or exchanged independently from the rest of the business. Because it is distinct from general business reputation, it cannot be lumped inside goodwill.

21. Internet domain names are classified as contract-based intangible assets.

• Answer: FALSE

• Explanation: Internet domain names (URLs) are classified as marketing-based intangible assets, not contract-based. Marketing-based intangibles are assets primarily used in the brand promotion, marketing, and advertising of a company’s goods and services. Since domain names serve as primary digital brand identifiers that connect consumers directly to a business’s online presence and brand ecosystem, they are grouped alongside trademarks and unique brand trade names.

22. Monetary assets like Accounts Receivable are considered intangible assets because they lack physical substance.

• Answer: FALSE

• Explanation: While Accounts Receivable lacks physical substance, it is explicitly excluded from the accounting definition of an intangible asset. Financial reporting frameworks specify that an intangible asset must be non-monetary. Accounts Receivable is classified as a financial instrument and a monetary current asset because it represents a legal, contractual right to receive a fixed or determinable amount of cash from a debtor in the near term.

23. Under IAS 38, organization and startup costs incurred to open a new business can be capitalized as a deferred asset.

• Answer: FALSE

• Explanation: Under both IFRS and US GAAP, all startup costs, incorporation fees, and pre-opening expenses must be expensed immediately in the period they occur. These expenditures do not result in an independent, identifiable asset controlled by the entity that guarantees a stream of future economic benefits. Since they fail to meet the strict definition and recognition threshold of an asset, capitalization is strictly prohibited.

24. A change in the estimated useful life of a patent requires the company to restate its past financial statements retrospectively.

• Answer: FALSE

• Explanation: A revision to an asset’s useful life or amortization method is classified as a “change in accounting estimate” under IAS 8 and US GAAP. Changes in estimates do not indicate an error; rather, they reflect new information or a shift in consumption patterns. Therefore, they are accounted for prospectively. Past financial records are left untouched, and the asset’s current net book value is simply amortized over its newly revised remaining useful life.

25. Franchise agreements are categorized as contract-based intangible assets.

• Answer: TRUE

• Explanation: A franchise agreement is a formal legal contract that grants a buyer (the franchisee) the right to operate a business using the specific branding, business model, and intellectual property of a parent corporation (the franchisor). Because the asset’s entire value and operational boundaries are derived directly from a legal contract, it is classified as a contract-based intangible asset and amortized over the contractual period.

26. Under IFRS, an impairment loss on a standard patent can be reversed if the asset’s recoverable amount increases in a future period.

• Answer: TRUE

• Explanation: Unlike goodwill, IAS 36 explicitly allows companies to reverse past impairment losses for standard finite-life intangible assets (like patents or licenses) if there is a clear change in the economic estimates used to determine the asset’s recoverable amount. The reversal is recognized as income in the profit or loss statement, but it is strictly capped: the newly restored carrying value cannot exceed what the asset’s amortized cost would have been if no impairment had occurred.

27. The straight-line method is the only permitted method for amortizing finite-life intangible assets.

• Answer: FALSE

• Explanation: While the straight-line method is the most common and default choice due to its simplicity, it is not the only permitted method. Accounting standards allow companies to use alternative methods, such as the declining-balance method or the units-of-production method, if the company can objectively demonstrate that the alternative pattern more accurately reflects how the economic benefits of the intangible asset are consumed by the enterprise.

28. Under US GAAP, an asset is considered impaired if its carrying value is greater than the total undiscounted future cash flows it will generate.

• Answer: TRUE

• Explanation: This describes Step 1 of the two-step impairment test for finite-life assets under US GAAP, known as the “Recoverability Test.” If a triggering event occurs, the company compares the asset’s book value to its undiscounted expected future cash flows. If the book value is higher, the asset fails the test, proving that its cost is not recoverable through future operations. Only after failing this test does the company measure the actual impairment loss based on fair value.

29. Broadcasting licenses granted by the government are examples of contract-based or legal-right intangible assets.

• Answer: TRUE

• Explanation: A broadcasting license is a statutory right granted by a government regulatory agency (such as the FCC) allowing a company to utilize specific radio or television frequencies. Since this asset lacks physical matter and derives its massive commercial value entirely from a legally binding, government-granted operational right, it is classified as a contract-based or legal-right intangible asset on the balance sheet.

30. When an intangible asset is fully amortized but still actively used in operations, it must be removed from the Balance Sheet.

• Answer: FALSE

• Explanation: A fully amortized asset that is still actively generating economic value should remain on the balance sheet at its historical cost, offset by an equal amount of accumulated amortization (resulting in a net book value of zero). Keeping both balances on the face of the financial statements provides essential transparency and full disclosure to investors regarding the company’s fully utilized resources. It is only removed upon official retirement, sale, or abandonment.

31. Under IFRS, website development costs incurred purely for advertising a company’s own products can be capitalized.

• Answer: FALSE

• Explanation: According to SIC-32, website development costs can only be capitalized if the website will directly generate probable future economic revenues (such as an e-commerce platform processing orders). If a website is developed purely to advertise, market, and promote a company’s own products or services, all development expenditures must be expensed immediately as operational marketing costs because a company cannot control consumer response.

32. In a business acquisition, the buyer must recognize an intangible asset of the target company at fair value, even if the target had previously expensed it.

• Answer: TRUE

• Explanation: During a corporate takeover, the acquirer is legally required to record all identifiable assets acquired at their acquisition-date fair values. If the target company internally developed a valuable patent or trademark, it was forced to expense those costs under R&D rules. However, because a market transaction has now occurred, the acquirer must separate this identifiable asset from goodwill and capitalize it at its current fair value on the consolidated balance sheet.

33. Production-related patent amortization should be recorded as a manufacturing overhead cost rather than an administrative expense.

• Answer: TRUE

• Explanation: The accounting classification of amortization depends entirely on the functional use of the underlying asset. If a specific patent is directly involved in manufacturing inventory (e.g., a patented factory production process), its periodic amortization is treated as manufacturing overhead. It is capitalized into the cost of inventory under IAS 2, and eventually flows to the income statement as Cost of Goods Sold (COGS) when that inventory is sold.

34. Under IFRS, if an intangible asset is acquired through a government grant for zero cost, it can only be recorded at zero on the balance sheet.

• Answer: FALSE

• Explanation: Under IAS 38, when an intangible asset (like an airport landing slot or radio license) is acquired via a government grant for free or a nominal cost, the enterprise has an accounting choice. It can choose to recognize both the intangible asset and the corresponding government grant initially at their fair values. Alternatively, it can choose the conservative path and record the asset at a nominal amount plus any direct registration expenses.

35. Advertising expenditures can be capitalized if a company can prove that a specific ad campaign successfully boosted sales.

• Answer: FALSE

• Explanation: Even if an advertising campaign directly correlates with a surge in sales, capitalization is strictly forbidden. Advertising costs must always be expensed in the period they occur. The reason is that a business cannot legally control the future economic actions and loyalty of its customers resulting from an advertisement, and it cannot isolate or measure the brand equity separately from the business as a whole.

36. An intangible asset’s amortization period is always fixed and cannot be reassessed during its life.

• Answer: FALSE

• Explanation: Financial accounting standards require companies to review the amortization period and method of finite-life intangible assets at least at the end of each financial year-end. If the expected useful life of the asset changes significantly due to unexpected technological obsolescence or market shifts, the amortization period must be updated prospectively as a change in accounting estimate to reflect the new economic reality.

37. Goodwill can be allocated to individual assets like machinery and buildings.

• Answer: FALSE

• Explanation: Goodwill is a residual asset that cannot be isolated or assigned to individual tangible assets. It represents the synergistic, unidentifiable future economic benefits of an entire business unit (such as a trained workforce or superior reputation). Therefore, for impairment testing and reporting, goodwill is allocated to broader operational levels, known as Cash-Generating Units (CGUs) under IFRS or Reporting Units under US GAAP.

38. Under US GAAP, goodwill impairment testing involves comparing the carrying value of a reporting unit with its fair value.

• Answer: TRUE

• Explanation: Under modern US GAAP guidelines (ASU 2017-04), testing goodwill impairment is a direct, simplified process. A company compares the fair value of an entire reporting unit against its total carrying book value (including goodwill). If the reporting unit’s carrying value is higher than its fair value, an impairment loss is recognized immediately for that exact difference, limited to the total goodwill allocated to that unit.

39. The direct reduction method of amortization involves crediting the intangible asset account itself instead of an accumulated amortization account.

• Answer: TRUE

• Explanation: While tangible assets must use a contra-asset account (“Accumulated Depreciation”), accounting rules allow a shortcut for intangible assets. Companies can credit the periodic amortization amount directly to the Intangible Asset account itself (e.g., debiting Amortization Expense and directly crediting Patents). While using an “Accumulated Amortization” contra-account is also acceptable, the direct reduction method is highly popular and widely used in practice.

40. Under IFRS, all costs incurred during the “Research Phase” of an internal project must be expensed as incurred.

• Answer: TRUE

• Explanation: IAS 38 mandates that all expenditures during the research phase of an internal project must be charged to expense when they occur. The rationale is that during the preliminary research stage, a company is merely exploring new knowledge and cannot prove that an identifiable asset exists or that it will generate probable future economic benefits. There is too much risk and uncertainty to justify asset capitalization.

41. If an intangible asset is exchanged for a non-monetary asset, its cost is measured at the carrying value of the asset given up by default.

• Answer: FALSE

• Explanation: Non-monetary asset exchanges are measured based on fair value, provided the transaction possesses commercial substance. By default, the cost of the incoming intangible asset is measured at the fair value of the asset given up, adjusted for any cash transferred. The carrying value (book value) of the old asset is only used as a fallback measurement if the transaction lacks commercial substance or if fair values cannot be reliably measured.

42. A copyright protects intellectual property rights for a specific timeframe, which represents a finite useful life.

• Answer: TRUE

• Explanation: A copyright is a legal right that protects creative, literary, or artistic works. It is granted for a specific legal duration (for example, the author’s life plus 70 years). Because its legal protection has an absolute expiration date, it represents a finite-life intangible asset. A company must systematically amortize the capitalized cost of a copyright over the shorter of its expected economic useful life or its statutory legal term.

43. Under US GAAP, an impairment loss on an intangible asset is calculated as the difference between its carrying value and its undiscounted cash flows.

• Answer: FALSE

• Explanation: While undiscounted cash flows are used in Step 1 to identify if an impairment exists, they are never used to calculate the actual loss amount. Under US GAAP, once an asset fails the recoverability test, Step 2 dictates that the impairment loss is calculated as the excess of the asset’s carrying value over its fair value (which typically represents the discounted present value of future cash flows).

44. The cost of purchasing a customer list from a competitor is expensed immediately because it relates to marketing.

• Answer: FALSE

• Explanation: While an internally generated customer list must be expensed, an externally purchased customer list from a competitor must be capitalized as an intangible asset. Because it was acquired via an external market transaction, its cost is reliably measured, and the company has acquired an identifiable resource that provides immediate access to market relationships. This capitalized cost is then amortized over its estimated useful life.

45. IAS 38 is the International Accounting Standard that specifically governs the accounting treatment for all Intangible Assets.

• Answer: TRUE

• Explanation: IAS 38 is the dedicated accounting standard within the IFRS framework that dictates the rules for intangible assets. It details the exact definitions, criteria for initial recognition, subsequent measurement choices (cost vs. revaluation models), amortization calculations for finite-life assets, and the extensive disclosure note requirements necessary to present non-monetary, non-physical assets transparently in financial statements.

46. If an asset is reclassified from an indefinite life to a finite life, it is treated as an automatic indicator of impairment.

• Answer: TRUE

• Explanation: When management determines that an asset previously classified as having an indefinite life now has a finite life (due to market shifts or new competition), it means the asset’s competitive advantage is fading. Under both GAAP and IFRS, this reclassification serves as an immediate trigger for impairment testing. Moving forward, the asset’s remaining book value will begin to be systematically amortized over its newly estimated finite lifespan.

47. Non-competition agreements signed during a business acquisition can be capitalized as contract-based intangible assets.

• Answer: TRUE

• Explanation: A non-competition agreement is a legally binding contract where a seller agrees not to open a competing business within a certain geographic area for a specific timeframe. Because this covenant gives the buyer exclusive market protection and derives its entire legal power from a contract, it is capitalized at its fair value as a contract-based intangible asset and amortized over the non-compete period.

48. Goodwill can be separate and sold individually away from the business entity as a whole.

• Answer: FALSE

• Explanation: Goodwill is a unique asset because it is completely inseparable from the business enterprise as a whole. It represents the collective synergies, reputation, employee talent, and strategic advantages of an operating unit. Unlike a patent or a vehicle, goodwill cannot be isolated, carved out, rented, or sold independently to a third party without selling the entire business structure or cash-generating unit along with it.

49. Under US GAAP, all software development costs for software intended to be SOLD externally must be expensed as R&D until technological feasibility is established.

• Answer: TRUE

• Explanation: Under US GAAP (ASC 985-20), software intended for external sale or lease faces a strict capitalization rule. All costs incurred during planning, designing, and coding are treated as R&D expenses until technological feasibility is established (proven by a working model or detailed program design). Only costs incurred after reaching this specific milestone can be capitalized as an intangible asset; all subsequent production costs must be capitalized until the product is ready for general release.

50. Disclosure notes must include a full reconciliation of the beginning and ending balances of intangible assets, including additions and amortization.

• Answer: TRUE

• Explanation: Financial reporting frameworks enforce strict disclosure transparency. Companies are legally required to provide a detailed reconciliation matrix in their financial footnotes. This note must show exactly how each class of intangible asset shifted from the start of the year to the closing date, itemizing new purchases, capitalized development costs, disposals, current period amortization expenses, impairment write-downs, and foreign exchange adjustments.