Question 1

Which statement is not correct?

Accepted Answer

A)  Under the successful efforts method,costs of all projects remain capitalized.
B)  ASPE allows either the full cost or successful efforts method to be used.
C)  Under the successful efforts method,only costs of successful projects remain capitalized.
D)  Under IFRS,all costs must be expensed if a mineral site is not worthy of further exploration. A

Question 2

In 2018,Waverly Corp.set up a new manufacturing facility in Nova Scotia.To encourage Waverly to set up its factory,the province provided equipment with a fair value of $250,000 and an estimated useful life of 15 years using straight-line depreciation.What journal entry would be required to record the equipment contribution in fiscal 2018,using the gross method?

Accepted Answer

A)  A credit to donation revenue of $250,000.
B)  A credit to other comprehensive income - donated assets of $250,000.
C)  A credit to deferred income of $250,000.
D)  A credit to property,plant and equipment for $250,000. C

Question 3

In 2018,New Wave Inc.(NW)set up a new manufacturing facility in Manitoba.To encourage NW to set up its factory,the province provided equipment with a fair value of $75,000 and an estimated useful life of 10 years using straight-line depreciation.What journal entry would be required to record the equipment contribution in fiscal 2018,using the net method?

Accepted Answer

A)  A credit to donation revenue of $75,000.
B)  A credit to other comprehensive income - donated assets of $75,000.
C)  A credit to deferred income of $75,000.
D)  A credit to property,plant and equipment for $75,000. D

Question 4

Explain the accounting for internally developed intangible assets.

Accepted Answer

The answer of Explain the accounting for internally developed intangible...

Question 5

Which statement is correct?

Accepted Answer

A)  In the extraction phase,the mineral site is ready for mineral production.
B)  In the extraction phase,the mineral site is prepared for resource extraction.
C)  In the extraction phase,the mineral site is assessed for technical viability.
D)  In the extraction phase,the six criteria required for capitalization are met.

Question 6

Listed below are several transactions that occurred during the year.In each case,all the amounts were debited to an account called "R and D costs." At the end of the year the company wants this account closed out and the amounts either expensed or capitalized to an asset account called "Development costs."
a.During the year $34,000,000 was paid to staff in the research division of a pharmaceutical firm.Supplies used totaled $3,000,000.Rent on the research building totaled $1,000,000.Utilities totaled $1,400,000.Head office allocated $1,500,000 in general overhead to the research division.The total spent on research was $40,900,000.The company is completing five different projects investigating whether five different drug combinations effectively reduce cancer in patients.One of the five drugs was very successful in most cases.Market research shows there is a huge market for this drug.The Board has committed resources to complete the project and market the drug;10% of the total research staff is working on the successful drug combination.
b.During the year $22,000,000 was paid to staff to investigate whether a drug combination was effective for reducing a specific type of cancer.The drug was very successful in most cases.Management is committed to continuing this project and has secured financial and technical resources to see if the drug will prove to be commercially viable.
c.Last year $70,000,000 in costs were capitalized as all the development cost criteria were satisfied for a specific drug combination.During the current year a further $10,000,000 was spent that can be directly attributed to this drug's development.Near the end of the year a competitor surprisingly started selling a similar drug.The first-mover advantage of the competing drug seriously challenges the market usefulness and success of the drug this company is researching.Management and the Board are nonetheless financially and strategically committed to launching their drug in 18 months.
Required:
Prepare the journal entry required for each case.Explain your proposed treatment

Accepted Answer

The answer of Listed below are several transactions that occurred...

Question 7

Which statement is not correct?

Accepted Answer

A)  Assessing the useful life of an intangible asset requires professional judgment.
B)  The residual value of an intangible asset is the same as the asset's salvage value.
C)  The straight-line method of amortization is generally used for intangible assets.
D)  The straight-line method of amortization achieves an equal pattern of cost allocation.

Question 8

Why is it important to understand the difference between research costs and development costs?

Accepted Answer

The answer of Why is it important to understand the...

Question 9

In 2018,Waverly Corp.set up a new manufacturing facility in Nova Scotia.To encourage Waverly to set up its factory,the province provided equipment with a fair value of $250,000,and estimated residual value of $0,and an estimated useful life of 10 years using straight-line depreciation.What journal entry would be required in fiscal 2019,using the gross method?

Accepted Answer

A)  A credit to donation revenue of $25,000.
B)  A credit to other comprehensive income - donated assets of $25,000.
C)  A credit to other income - government grant of $25,000.
D)  A credit to depreciation expense for $25,000.

Question 10

Which criteria under IAS 38 would be met if there is a "project budget that outlines the specific costs,so the costs of the project are likely to be measured with sufficient reliability"?

Accepted Answer

A)  Measurement reliability.
B)  Management intention.
C)  Technical feasibility.
D)  Resource adequacy.

Question 11

Which statement is not correct?

Accepted Answer

A)  Goodwill represents the difference between the purchase price and the fair value of net assets acquired.
B)  Fair value is the after-tax amount at which an item could be sold in an arm's length transaction.
C)  Economic goodwill differs from accounting goodwill and can be created by branding.
D)  Fair value is the amount which could be exchanged in an arm's length transaction.

Question 12

Below are several intangible assets.For each case suggest whether the item should be amortized.If amortization is recommended,what is the useful life that it should be amortized over? Provide justification for your recommendation.
a.Aye Corp purchased a brand name for $1,000,000.The firm has the exclusive right to use this name forever.
b.Bee Corp has developed a strong corporate reputation and its products are highly sought-after in the luxury goods market.Last year,$40,000,000 was spent on advertising its brand in top-tier fashion magazines and at the top fashion shows around the world.
c.Cee Corp paid $25,000,000 for the five-year exclusive privilege to have a famous celebrity endorse and use the company's sports equipment.This contract entitles Cee to renew the contract for a further two-year exclusive endorsement arrangement for a fixed fee of $10,000,000,due midway through the last year of the current contract.

Accepted Answer

The answer of Below are several intangible assets.For each case...

Question 13

Calculate the missing amounts by completing the table below.

Accepted Answer

The answer of Calculate the missing amounts by completing the...

Question 14

Which of the following is not a characteristic of intangible assets?

Accepted Answer

A)  Intangibles do not have physical substance.
B)  Intangibles benefit more than one year.
C)  Intangibles have fixed determinable cash flows.
D)  Intangibles are held for use in the ordinary course of business.

Question 15

New Ventures Corp. ,a publicly accountable entity,capitalized the following costs:

Which statement is correct?

Accepted Answer

A)  Both of these assets will have an indefinite useful life.
B)  Both of these assets will have a definite useful life.
C)  For both assets,the useful life will be equal to the asset's legal life.
D)  For both assets,the useful life could be shorter than its legal life.

Question 16

Which statement does not describe the "successful efforts" method?

Accepted Answer

A)  A method of accounting that capitalizes costs of mineral exploration and evaluation only if the outcome is successful.
B)  A method of accounting that capitalizes costs of mineral exploration and evaluation only if the production is technically feasible.
C)  A method of accounting that capitalizes costs of mineral exploration and evaluation until the production is successful.
D)  A method of accounting that capitalizes costs of mineral exploration and evaluation only if the production is commercially viable.

Question 17

What is the appropriate treatment for re-payment of government grants under IFRS?

Accepted Answer

A)  Accounted for prospectively.
B)  Accounted for retrospectively.
C)  Partial prospective treatment and partial retrospective treatment.
D)  Full prospective treatment and full retrospective treatment.

Question 18

Wind Town is a builder of wind turbines that are used in electricity generation.To encourage the installation of wind turbines and the development of wind power technology,the provincial government has several programs in place that support the industry.In 2018,Wind Town incurred the following costs that were potentially eligible for government subsidies:
i.The company spent $10 million on research and development (R&D);these costs are eligible for a 25% tax credit.The $10 million had been previously expensed.
ii.For each megawatt of wind power generating capacity installed,the government provides a subsidy of $100,000 to the customer.In 2018,Wind Town installed 17 megawatts for its customers (utility companies).
iii.Wind Town is eligible for a full tax rebate on sales tax normally levied on materials used in the construction of its turbine factory.This sales tax amounted to 5% of the materials cost of $35 million.
Required:
a.Record the journal entries for the above transactions using the gross method for government grants.
b.Record the journal entries for the above transactions using the net method for government grants.

Accepted Answer

The answer of Wind Town is a builder of wind...

Question 19

Soorya Resources incurred the following costs:

How much would be capitalized as "intangible assets" under the full cost method?

Accepted Answer

A)  $300,000
B)  $400,000
C)  $500,000
D)  $600,000

Question 20

What factor will not affect the estimated useful life of a finite lived intangible asset?

Accepted Answer

A)  Legal life of the asset.
B)  Productive capacity.
C)  Competitive pressures.
D)  Technological obsolescence.

Exam 9: Intangible Assets, goodwill, mineral Resources, and Government Grants

Which statement is not correct?

Explain the accounting for internally developed intangible assets.

Which statement is correct?

Which statement is not correct?

Why is it important to understand the difference between research costs and development costs?

Which criteria under IAS 38 would be met if there is a "project budget that outlines the specific costs,so the costs of the project are likely to be measured with sufficient reliability"?

Which statement is not correct?

Calculate the missing amounts by completing the table below.

Which of the following is not a characteristic of intangible assets?

New Ventures Corp. ,a publicly accountable entity,capitalized the following costs: Which statement is correct?

Which statement does not describe the "successful efforts" method?

What is the appropriate treatment for re-payment of government grants under IFRS?

Soorya Resources incurred the following costs: How much would be capitalized as "intangible assets" under the full cost method?

What factor will not affect the estimated useful life of a finite lived intangible asset?