CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which ones of the following items are examples of intangible assets?

I. Franchises
II. Goodwill
III. Secret processes
IV. Organization costs
A. I, II & IV
B. All of them
C. I & II

User Contributed Comments 14

User Comment
kalps Organization costs are also intangible assets !! I thought they would have just gone in the expenses caption of the P&L
ReaClute I think this is wrong. I don't think org costs are intangibles, nor "secret processes".
tony1973 Yes org expense are intangible!
xxxx I was wondering how you intend to book 'secret processes' on a BS?
tackle I think this is a trick question. Secret processes are an intangible asset, but they are not eligible for being capitalized on the balance sheet.
cbb1 Organization costs (start-up costs) are expensed under GAAP. See page 539 of Fianncial Accounting text by Needles & Powers being used for 2005 CFA exam. How can they be intangible assets?
johnsk Intangible assets are assets owned by the business that have no physical substance, are noncurrent, and are used in business operations. Examples include patents, copyrights, franchises, goodwill, trademarks, trade names, secret processes, property rights, goodwill, and organization costs.

The decision to capitalize or expense them is another question (not asked here).
danlan Good explanation, johnsk
robB If you cannot kick it..it must be an intangible asset..if you can it is a tangible asset
afrosoul A cost by definition is not an asset.

" assets are the economic resources of a company"
(Level I Volume 3 Financial Reporting and Analysis , 6th Edition. Pearson Learning Solutions p. 35).

"expenses are outflows of economic resources or increases in liabilities."
(Level I Volume 3 Financial Reporting and Analysis , 6th Edition. Pearson Learning Solutions p. 36).

Ergo, organisational costs CANNOT be intangible assets.
jnptrsn1 Afrosoul: Consider prepaid leases or prepaid insurance. Those would be future expenses but they're also assets in the present.
schweitzdm I too would enjoy further discussion on organization costs.
rjdelong Perhaps we shouldn't fight it. Johnsk has it there. So maybe think of it this way: the organization is the asset the cost of that organization is how you value the asset, like the historical cost of equipment... just think of a company that has organized a group of specialized engineers and developed procedures to help them coordinate their designing process, that is an organization and the cost is a startup cost, exactly cbb1 said it.
cfastudypl Johnsk is quite right. If you take a deep thought you can not but agree that organization costs are indeed intangible. The intangibility is not in the costs themselves but mgt unique skills is getting things done at cheaper cost than would have ordinarily be gotten. For example, if company A paid $10 for exactly the same cost item for which company B is paid $20 for. You can clearly deduce that company A mgt has better negotiation skills than that of company B. Such skills are indeed intangible assets leading on to continual lower organization(al) costs.
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