50 VALUATION EXAMINATION MCQS ON INTANGIBLE ASSETS FOR PRACTICE IBBI EXAMINATION
WITH A FOCUS ON 1 MARK
General Overview of SFA in Insolvency
Here is a set of 50 multiple-choice questions (MCQs) based on the Intangible Assets section of the IBBI (Insolvency and Bankruptcy Board of India) Valuation Examination syllabus. Each question is followed by the correct answer.
1. What is the nature of intangible assets?
A) Physical and tangible
B) Non-physical and non-monetary
C) Non-physical and monetary
D) Tangible and physical
Answer: B) Non-physical and non-monetary
2. Which of the following is NOT an example of an intangible asset?
A) Goodwill
B) Brand name
C) Computer software
D) Land
Answer: D) Land
3. The life of an intangible asset is usually determined by:
A) Its contractual or legal life
B) Its physical life
C) Its market life
D) Its depreciation period
Answer: A) Its contractual or legal life
4. Intangible assets are classified based on:
A) Whether they are acquired or internally generated
B) Whether they are tangible or intangible
C) Their economic value
D) Their physical form
Answer: A) Whether they are acquired or internally generated
5. Which of the following is true about intangible assets under development?
A) They are considered as part of research assets.
B) They are classified as tangible assets.
C) They are intangible assets ready for use.
D) They are part of a company’s goodwill.
Answer: A) They are considered as part of research assets.
6. The valuation of intangible assets is important for:
A) Financial reporting under Ind AS
B) Legal and tax reporting
C) Estate and gift tax calculations
D) All of the above
Answer: D) All of the above
7. Amortization allowance is important for:
A) Depreciation of tangible assets
B) Deductions on intangible asset valuation for tax purposes
C) Capital gains calculations
D) Calculation of the present value of future cash flows
Answer: B) Deductions on intangible asset valuation for tax purposes
8. Which of the following is a method of intangible asset valuation?
A) Discounted Cash Flow (DCF) method
B) Excess earnings method
C) Replacement cost method
D) Cost of acquisition method
Answer: B) Excess earnings method
9. The Relief-from-Royalty method is mainly used to value:
A) Trademarks and patents
B) Customer lists
C) Franchise agreements
D) Real estate property
Answer: A) Trademarks and patents
10. The Premium Profit method is typically used to value:
A) Brands and trademarks
B) Goodwill and reputation
C) Software development costs
D) Customer loyalty programs
Answer: B) Goodwill and reputation
11. Under the Greenfield method, the focus is on:
A) Estimating the market value of an asset
B) Determining the cost of creating a new asset from scratch
C) Discounting future cash flows of an asset
D) Calculating the historical cost of an asset
Answer: B) Determining the cost of creating a new asset from scratch
12. Which method is used to value distributorship agreements?
A) Distributor method
B) Excess earnings method
C) Income-based method
D) Cost-based method
Answer: A) Distributor method
13. A major factor in determining the rate of return for intangible assets is:
A) Market interest rate
B) Expected future income
C) Historical cost
D) Physical condition of the asset
Answer: B) Expected future income
14. In the context of intangible assets, a discount rate is typically applied to:
A) Determine the future market value
B) Estimate the value of the asset based on future cash flows
C) Calculate the cost of creating the intangible asset
D) Assess the potential risks of the asset
Answer: B) Estimate the value of the asset based on future cash flows
15. Which of the following best describes the “excess earnings method” for intangible asset valuation?
A) A method that considers only the current earnings of a business
B) A method that focuses on the net income generated by the intangible asset after deducting operating costs
C) A cost-based method
D) A method based on market comparables
Answer: B) A method that focuses on the net income generated by the intangible asset after deducting operating costs
16. In the context of intangible assets, the term “reversionary value” refers to:
A) The value of an asset at the end of its useful life
B) The value of an asset when it reverts to the original owner
C) The initial cost of the intangible asset
D) The present value of future cash flows generated by the asset
Answer: A) The value of an asset at the end of its useful life
17. Which of the following factors is critical in identifying intangible assets under development?
A) The asset’s market value
B) The stage of completion of the project
C) The asset’s contribution to operating income
D) The asset’s location
Answer: B) The stage of completion of the project
18. Goodwill is classified as an intangible asset primarily because it represents:
A) A physical property
B) The value of brand reputation and customer loyalty
C) The sum of fixed assets
D) Cash flows expected from future projects
Answer: B) The value of brand reputation and customer loyalty
19. Research and development costs related to intangible assets are usually classified as:
A) Tangible assets
B) Intangible assets under development
C) Financial investments
D) Operating expenses
Answer: B) Intangible assets under development
20. Which of the following best describes the “relief-from-royalty” method?
A) It values intangible assets based on the relief the owner gets by not having to pay royalties.
B) It is used for valuing physical assets.
C) It involves estimating the future cash flows that the asset can generate through licensing.
D) It calculates the historical cost of an intangible asset.
Answer: A) It values intangible assets based on the relief the owner gets by not having to pay royalties.
21. Which of the following is true about the premium profit method?
A) It is used to calculate the value of assets like patents and trademarks.
B) It is based on the forecasted excess profits attributable to the intangible asset.
C) It is a market-based valuation approach.
D) It uses a direct comparison to similar assets in the market.
Answer: B) It is based on the forecasted excess profits attributable to the intangible asset.
22. The legal life of an intangible asset:
A) Must always be finite
B) Is always shorter than its economic life
C) Can be indefinite under certain conditions
D) Cannot be extended beyond 20 years
Answer: C) Can be indefinite under certain conditions
23. Which of the following would be classified as an intangible asset under the IAS/Ind AS framework?
A) Patents
B) Buildings
C) Cash
D) Inventory
Answer: A) Patents
24. The primary use of intangible asset valuation in the context of insolvency is to:
A) Determine the liquidation value
B) Determine the market value of real estate
C) Establish the future earning potential of an asset
D) Assess the impact on the bankruptcy estate’s claims
Answer: D) Assess the impact on the bankruptcy estate’s claims
25. Which method is commonly used to value software as an intangible asset?
A) Relief-from-royalty method
B) Market approach
C) Cost-based method
D) Excess earnings method
Answer: C) Cost-based method
26. The ‘excess earnings method’ primarily requires an estimate of:
A) Historical costs
B) Market prices
C) Future profits attributable to the intangible asset
D) Capital expenditure
Answer: C) Future profits attributable to the intangible asset
27. Which of the following is an example of an intangible asset not generating cash flow independently?
A) Trademark
B) Patent
C) Customer list
D) Goodwill
Answer: D) Goodwill
28. In the context of intangible assets, “research assets” are typically classified as:
A) Intangible assets under development
B) Completed intangible assets
C) Tangible assets
D) Operating expenses
Answer: A) Intangible assets under development
29. A “franchise agreement” would typically be classified under which type of intangible asset?
A) Goodwill
B) Trademark
C) Contractual rights
D) Customer list
Answer: C) Contractual rights
30. Which of the following statements is true regarding amortization of intangible assets?
A) Intangible assets are not amortized.
B) Amortization is applied to intangible assets with indefinite lives.
C) Intangible assets with finite lives are amortized over their useful life.
D) Amortization is not permitted under Indian accounting standards.
Answer: C) Intangible assets with finite lives are amortized over their useful life.
31. The most suitable valuation approach for valuing a trademark is:
A) Relief-from-royalty method
B) Excess earnings method
C) Cost-based method
D) Distributor method
Answer: A) Relief-from-royalty method
32. For an intangible asset like a software license, the key consideration in valuation is:
A) Its market value
B) Its useful life and income-generating capacity
C) Its historical cost
D) Its book value
Answer: B) Its useful life and income-generating capacity
33. Under the Greenfield method, valuation focuses on:
A) Forecasting the cost of creating a new asset from scratch
B) The past market performance of the asset
C) Comparing the asset to market prices
D) Estimating the revenue generated by the asset
Answer: A) Forecasting the cost of creating a new asset from scratch
34. The premium profit method primarily evaluates:
A) The market value of the intangible asset
B) The expected earnings beyond a normal return
C) The physical condition of the asset
D) The replacement cost of the asset
Answer: B) The expected earnings beyond a normal return
35. The purpose of using the relief-from-royalty method for valuation of intangible assets is to estimate:
A) Future cash flows generated by the asset
B) The potential cost savings if the asset were licensed
C) The liquidation value of the asset
D) The historical cost of the asset
Answer: B) The potential cost savings if the asset were licensed
36. In an insolvency situation, the value of intangible assets such as goodwill is determined based on:
A) Replacement cost
B) Liquidation value
C) Income-generating capacity
D) Book value
Answer: C) Income-generating capacity
37. Which of the following intangible assets typically has an indefinite life?
A) Copyright
B) Goodwill
C) Franchise agreement
D) Patent
Answer: B) Goodwill
38. Intangible assets that are “acquired” generally include:
A) Assets that were developed internally by the company
B) Assets that were purchased from another entity
C) Only assets with physical substance
D) Assets that have no legal protection
Answer: B) Assets that were purchased from another entity
39. The nature of intangible assets is most closely linked to:
A) The physical substance of the asset
B) Their ability to generate future economic benefits
C) Their tax treatment
D) Their length of use
Answer: B) Their ability to generate future economic benefits
40. The cost of acquiring an intangible asset is often determined by:
A) Its historical cost and associated expenses
B) The present value of future benefits generated by the asset
C) The cost of research and development
D) The market value of similar assets
Answer: A) Its historical cost and associated expenses
41. The relief-from-royalty method estimates the value of an intangible asset based on the:
A) Cost of development
B) Royalties that would have been paid to license the asset
C) Excess profits expected from the asset
D) Replacement cost of the asset
Answer: B) Royalties that would have been paid to license the asset
42. The distributor method is primarily used to value:
A) Franchises and licenses
B) Patents and trademarks
C) Customer lists and goodwill
D) Software and technology
Answer: A) Franchises and licenses
43. Which of the following is true about research costs associated with intangible assets?
A) They are capitalized as intangible assets.
B) They are immediately expensed unless the project is technically viable.
C) They are not considered when valuing intangible assets.
D) They contribute to the asset’s goodwill.
Answer: B) They are immediately expensed unless the project is technically viable.
44. Which method is typically used to value a customer list or relationship as an intangible asset?
A) Excess earnings method
B) Distributor method
C) Relief-from-royalty method
D) Cost-based method
Answer: A) Excess earnings method
45. An intangible asset that generates income through licensing would most likely be valued using:
A) Relief-from-royalty method
B) Excess earnings method
C) Distributor method
D) Market comparison method
Answer: A) Relief-from-royalty method
46. The identification of whether an intangible asset generates cash flows independently is important for:
A) Valuation of tangible assets
B) Determining whether amortization is required
C) Classifying it as a separate intangible asset or as part of goodwill
D) Estimating the useful life of the asset
Answer: C) Classifying it as a separate intangible asset or as part of goodwill
47. Which of the following intangible assets typically does NOT generate cash flows independently?
A) Trademark
B) Patent
C) Goodwill
D) Customer list
Answer: C) Goodwill
48. Which valuation approach is commonly applied to franchise agreements?
A) Relief-from-royalty method
B) Excess earnings method
C) Greenfield method
D) Distributor method
Answer: D) Distributor method
49. The excess earnings method is based on the principle that intangible assets generate:
A) Revenue through licensing agreements
B) Surplus profits above a normal return on capital employed
C) Capital appreciation
D) Interest payments from loans
Answer: B) Surplus profits above a normal return on capital employed
50. Under the Ind AS, the amortization of intangible assets is required for:
A) All intangible assets
B) Intangible assets with finite lives
C) Only intangible assets that generate revenue
D) Intangible assets with indefinite lives
Answer: B) Intangible assets with finite lives
These questions are designed to help reinforce key concepts related to intangible assets, their identification, classification, and valuation approaches in the context of the IBBI Valuation Examination.
