Question

A direct-mail marketing company acquires a customer list and expects that it will be able to derive benefits from the information on the list for three years. The customer list is:

1. An intangible asset which cannot be recognised on the balance sheet.
2. An asset with indefinite life which can be recognised on the balance sheet.
3. An asset with finite life which can be recognised on the balance sheet.
4. An asset which can be amortised.
5. An asset that cannot be amortised.

Select one:

a. 3, 4 and 5 only

b. 2 and 5 only

c. 1 only

d. 3 and 4 only

e. 2, 4 and 5 only

Answer 1

The correct answer is Option D - 3 & 4 only.

The customer list will give benefits to the company for more than one year, hence such an expense should be capitalized and not expensed out. It is an asset as it is will give future expected benefits to the company. It has a finite life as the company itself has estimated the asset life to be for 3 years. It is a intangible asset with a finite life that should be recognized on the balance sheet & it should be amortized.