IAS 38
MULTIPLE-CHOICE QUESTIONS
1. A newly set up dot-com entity has engaged you as its financial advisor. The entity has
recently com-pleted one of its highly publicized research and de-velopment projects and seeks
your advice on the accuracy of the following statements made by one of its stakeholders.
Which one is it?
(a) Costs incurred during the “research phase” can be capitalized.
(b) Costs incurred during the “development phase” can be capitalized if criteria such as
technical feasibility of the project being es-tablished are met.
(c) Training costs of technicians used in re-search can be capitalized.
(d) Designing of jigs and tools qualify as re-search activities.
2. Which item listed below does not qualify as an intangible asset?
(a) Computer software.
(b) Registered patent.
(c) Copyrights that are protected.
(d) Notebook computer.
3. Which of the following items qualify as an intan-gible asset under IAS 38?
(a) Advertising and promotion on the launch of a huge product.
(b) College tuition fees paid to employees who decide to enroll in an executive M.B.A. pro-
gram at Harvard University while working with the company.
(c) Operating losses during the initial stages of the project.
(d) Legal costs paid to intellectual property law-yers to register a patent.
4. Once recognized, intangible assets can be carried at
(a) Cost less accumulated depreciation.
(b) Cost less accumulated depreciation and less accumulated amortization.
(c) Revalued amount less accumulated de-preciation.
(d) Cost plus a notional increase in fair value since the intangible asset is acquired.
5. Which of the following disclosures is not required by IAS 38?
(a) Useful lives of the intangible assets.
(b) Reconciliation of carrying amount at the be-ginning and the end of the year.
(c) Contractual commitments for the acquisition of intangible assets.

with the air conditioners to ensure its compatibility
• October 30, 20X5: A focus group of other engineering providers was invited to a conference
for the introduction of this new product. Cost of the conference aggregated to $50,000.
• December 15, 20X5: The development phase was completed and a cash flow budget was pre-
pared. Net profit for the year 20X5 was estimated to equal $900,000.
Required
What is the proper accounting treatment for the various costs incurred during 20X5?
Case Study 3
Facts
Costs generally incurred by a newly established entity include
(a) Preopening costs of a business facility
(b) Recipes, secret formulas, models and designs, prototype
(c) Training, customer loyalty, and market share
(d) An in-house–generated accounting software
(e) The design of a pilot plan
(f) Licensing, royalty, and stand-still agreements
(g) Operating and broadcast rights
(h) Goodwill purchased in a business combination
(i) A company-developed patented drug approved for medical use
(j) A license to manufacture a steroid by means of a government grant
(k) Cost of courses taken by management in quality engineering management
(l) A television advertisement that will stimulate the sales in the technology industry
Required
Which of the above-mentioned costs are eligible for capitalization according to IAS 38, and
which of them should be expensed when they are incurred?
Case Study 4
Active Asset Inc. owns a freely transferable taxi operator’s license, which it acquired on January
1, 20X1, at an initial cost of $10,000. The useful life of the license is five years (based on the
date it is valid for). The entity uses the straight-line method to amortize the intangible. Such
licenses are frequently traded either between existing operators or with aspiring operators. At the