When a Patent or Trademark Is Acquired in a Business

question 15

Multiple Choice

When a patent or trademark is acquired in a business combination, what does IAS 38 say about recording these intangibles?

• A) If they had not been previously recorded as separate assets by the acquired company, they should always be recorded as "Goodwill" on the balance sheet of the company acquiring them.
• B) The cost of the intangibles should be expensed by the acquiring company on the merger date.
• C) They should be recorded as separate intangible assets only if their useful life is indefinite.
• D) They should be recorded as separate intangible assets if their fair value can be reliably measured.

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Definitions:

Net Operating Income

A measure of a company's profitability from its regular business operations, excluding revenues and expenses from non-operating activities.

Margin of Safety Percentage

A financial metric indicating the difference between actual or forecasted sales and sales at the break-even point, expressed as a percentage of total sales.

Degree of Operating Leverage

A measure that quantifies the percentage change in a company's operating income resulting from a percentage change in its sales volume.

Net Operating Income

The profit a business makes after subtracting operating costs, yet prior to removing interest and tax expenses.