Chapter 6 - Intangible Assets

CHAPTER 6
INTANGIBLE ASSETS
PROBLEMS
6-1.

(Daydream Corporation)
a.
Expense, cost of internally developed publishing title is not allowed to be capitalized.
b.
Intangible
c.
Expense
d.
Intangible
e.
Intangible
f.
Prepaid expense
g.
With alternative use, PPE; otherwise, unrecoverable cost, R and D expense
h.
Charged to RE
i.
Expense
j.
Intangible
k.
Intangible
l.
Expense
m.
Expense, copyright shall be written off in profit or loss
n.
Expense
o.
Expense
p.
PPE
q.
Expense
r.
Expense

6-2.

(Amsterdam Enterprises, Inc.)

a.
Special equipment (600,000 460,000)
Research salaries
Costs of testing prototype
R & D Expense

P140,000
51,300
70,800
P262,100

b.

c.

d.

6-3.

Fees paid to Phil. Patent Office

Drawings required by the patent office
Legal costs of filing patent
Patent cost, January 1, 2010
Less amortization of patent for years 2010 and 2011
(59,700/ 10) x 2 yrs.
Patent carrying value, December 31, 2011

7,500
14,100
38,100
P 59,700
11,940
P 47,760

Patent carrying value at December 31, 2012

59,700 x 7/10
Remaining estimated useful life at January 1, 2013
Amortization expense for year 2013

P 41,790

5
P 8,358

Carrying value, January 1, 2013

Less amortization expense for 2013
Carrying value, December 31, 2013

P41,790
8,358
P33,432

(May Company)
Patents
Cost
Less accumulated amortization
36,000 + (156,000 8)

P192,000
55,500

52

P 136,500

Chapter 6 - Intangible Assets

6-4.

License
Cost (100 x 600 x 2/3)
Less accumulated amortization (40,000/4)
Trademark
Cost (100 x 600 x 1/3)
Less accumulated amortization (20,000/4)
Goodwill (12M 9M)
Total intangible assets
(July, Inc.)

P 40,000
10,000
P 20,000
5,000

30,000

15,000
3,000,000
P3,181,500

2005

Jan. 3

Patents
Cash

196,000
196,000

2005-2008

Dec. 31

Amortization Expense - Patents

Accumulated Amortization-Patents
196,000 / 10

19,600

Jan. 1

Legal Fees
Cash

28,000

Dec. 31

Amortization Expense
Accumulated Amortization-Patents

19,600

Patents
Cash

60,000

Amortization Expense
Accumulated Amortization-Patents
196,000 (19,600 x 5) = 98,000
(98,000 + 60,000) / 10 = 15,800

15,800

19,600

2009

28,000

19,600

2010

Jan. 1

2010-2012
Dec. 31

60,000

15,800

2013

July 1

6-5.

Amortization Expense
Accumulated Amortization-Patents
15,800 x 6/12 = 7,900

7,900

Loss from Write off of Patents

Accumulated Amortization-Patents
Patents
196,000 + 60,000 = 256,000
98,000 + (15,800 x 3.5 yrs) = 153,300

(ToGo Company)
Carrying value
Recoverable value
150,000/10% = 1,500,000 x 80%
300,000/10% = 3,000,000 x 20%
Impairment loss

102,700
153,300
256,000

P4,000,000
P1,200,000
600,000

53

7,900

1,800,000
P2,200,000

Chapter 6 - Intangible Assets

6-6.

(Boston Company)
a.
Patent cost
Estimated useful life
Amortization per year
Amortization expense for 2010 (100,000 x 6/12)
b.

Carrying amount, December 31, 2011 (500,000 150,000)

Estimated recoverable amount
Impairment loss at December 31, 2011

P350,000
150,000
P200,000

c.

Written down value of patent at December 31, 2011

Less amortization for 2012
150,000 / 3
Carrying amount at December 31, 2012

P150,000

Sound value at January 1, 2013

Carrying amount at December 31, 2012
Increase in value
Impairment loss
Recovery of previous impairment loss through lower
amortization (100,000 50,000)
Revaluation surplus in 2013

P600,000
100,000
P500,000

d.

6-7.

P500,000
5 yrs.
P100,000
P 50,000

(Summer Company)
2010
R & D Expense
Cash

50,000
P100,000

P200,000
50,000

150,000
P350,000

500,000

500,000

2011

Jan. 1

Dec. 31

Patents
Cash

120,000
120,000

Amortization Expense
Accumulated Amortization-Patents

12,000

12,000

2012

Jan. 1
2012-2013

Dec. 31

Patents
Cash

1,200,000
1,200,000

Amortization Expense
Accumulated Amortization-Patents
(120,000-12,000) + 1,200,000 = 1,308,000
1,308,000/15 = 87,200

87,200
87,200

2013

Dec. 31

6-8.

Loss from Write down of Patents

Accumulated Amortization
Patents

(April Company)

54

1,133,600
186,400
1,320,000

Chapter 6 - Intangible Assets

Laboratory research
Modification of formulation
Testing
Searching for application
Depreciation of equipment (280,000/5)
R & D costs for 2013
6-9.

P 68,000
26,000
24,000
19,000
56,000
P193,000

(Autumn Company)
a.
2013
Franchise
Cash
Dec. 31

31

b.
Dec. 31

6,250,000
6,250,000

Franchise Fee Expense (5% x 10,000,000)

Cash /Accrued Expenses

500,000

Amortization Expense
Accumulated Amortization-Franchise
6,250,000/10 = 625,000; 625,000 x 1/2

312,500

Amortization Expense
Accumulated Amortization-Patents
750,000 x 9.5/10 = 712,500; 712,500 / 5

142,500

500,000

312,500

142,500

c.
R & D Expense
2,300,000
Equipment
1,000,000
Accumulated Depreciation-Equipment
Cash
R&D=200,000+1,400,000+600,000+100,000= 2,300,000
(1,000,000 / 5) x = 100,000
6-10.

(Global Computer Corporation)

a.
R & D Expense
Software Costs
Cash
b.

6-11.

800,000
500,000

Amortization Expense
Accumulated Amortization-Software Costs
500,000 / 4 years = 125,000
500,000 x 1M/5 M= 100,000

(Sun Company)
a.
Downpayment
Present value of future payments
300,000 x 2.4869
Total cost
b.

125,000

746,070
P1,246,070

P 124,607

55

1,300,000

125,000

P 500,000

Amortization Expense for 2013

1,246,070 / 10yrs

100,000
3,200,000

Chapter 6 - Intangible Assets

c.
2013
Jan. 1

Dec. 31

31

2014
Jan. 1

6-12.

1,246,070
153,930
500,000
900,000

Interest Expense
Discount on Notes Payable
10% x 746,070 = 74,607

74,607

Amortization Expense
Accumulated Amortization-Franchise

89,738

74,067

Notes Payable
Cash

300,000

Trade Receivables
Inventory
Property, Plant and Equipment
Goodwill
Current Liabilities
Noncurrent Liabilities
Cash

P7,000,000
6,240,000
P 760,000

1,000,000
1,700,000
5,900,000
760,000
760,000
1,600,000
7,000,000

(Bagong Silangan Company)

a.
Recoverable amount of the CGU
Carrying amount of the CGU
Impairment of CGU

P13,100,000
13,400,000
P
300,000

Impairment Loss
Goodwill
b.

89,738

300,000

(Winter Company)
a.
Cash purchase price
Fair value of net assets
(1,000,000 + 1,700,000 + 5,900,000 2.360,000)
Goodwill

b.

6-13.

Franchise
Discount on Notes Payable
Cash
Notes Payable

300,000
300,000

Recoverable amount of the CGU

Carrying amount of the CGU
Impairment loss
Reported goodwill per ledger
Decrease in value of identifiable noncurrent assets
Impairment loss
Goodwill
Land (5/13 x 600,000)

P12,400,000
13,400,000
P 1,000,000
400,000
P
600,000
1,000,000

56

400,000
230,769

Chapter 6 - Intangible Assets

Accumulated depreciation Building (6.2/13 x 600,000)
Accumulated amortization Patents (1/13 x 600,000)
Accumulated amortization Trademarks (.8/13 x 600,000)

286,154
46,154
36,923

MULTIPLE CHOICE QUESTIONS

Theory
MC1 D
MC2 D
MC3 C
MC4 B
MC5 B

MC6
MC7
MC8
MC9
MC10

Problems
MC21
MC22
MC23
MC24
MC25

D
C
C
B
B

MC26

MC27
MC28
MC29
MC30
MC31
MC32
MC33
MC34
MC35
MC36
MC37
MC38
MC39
MC40
MC41
MC42
MC43
MC44
MC45
MC46

C
C
B
A
C
C
A
A
C
B
C
D
A
B
B
C
C
A
C
B

A
C
D
B
D

MC11
MC12
MC13
MC14
MC15

B
D
B
D
C

MC16
MC17
MC18
MC19
MC20

B
A
B
D
C

244,000 + 100,000 = 344,000

Initial franchise fee of P1,000,000
750,000 + 150,000 = 900,000
200,000 + (100,000 x 2.91) = 491,000
1,200,000 x 2/50 = 48,000; (750,000 10) x 2/12 = 12,500
60,000 x 2/12 = 10,000; 48,000 + 12,500 + 10,000 = 70,500
125,000 10 = 12,500; 272,500 5 = 54,500 x = 27,250
656,200 17 = 38,600; 12,500 + 27,250 + 38,600 = 78,350
340,000 10 = 34,000 x = 17,000
340,000 17,000 34,000 = 289,000
289,000 5 = 57,800
P0
68,000 + 24,000 + 6,000 + 19,000 = 117,000
152,000 8 = 19,000
1,440,000 x 1.5/10 = 216,000
40,000 + 5,000 = 45,000
900,000 x 7/10 = 630,000
210,000 + 300,000 + 400,000 + 220,000 + 260,000 = 1,390,000
1,500,000 30 = 50,000
480,000 10 = 48,000
(480,000 x 5/10) + 200,000 = 440,000; 440,000 10 = 44,000
440,000 (44,000 x 3.5 yrs) = 286,000
270,000 x 6/10 = 162,000; 162,000 3 = 54,000; 162,000 54,000 = 108,000
1/5=20%; Depreciation is the higher rate, 20%; thus carrying amount is 80%
25% X 6M = 1,500,000
1,500,000 5,000,000 = 30%; 30% x 2,500,000 = 750,000
115,000,000 52,500,000 = 62,500,000; 70,000,000 62,500,000 = 7,500,000
1,000,000

57