Intangibles Worksheet

Adjustments Required
1)
Machinery
Patents
Cost of Goods Sold

Patents
2)
3)
###
###
###
###
Licensing Agreement-B
###
Revenue received in advance
Retained Earnings
Licensing Agreement-A
2
###
3
###
###
4)
5)
6)
Cost of Goods sold

Licensing Agreement-B
###
Retained Earnings
Goodwill
###
Equipment
Accounts Receivable-nontrade
Leasehold Improvements
###
###
Amortization
Retained
earningsAmortization
expense-error
correctiom-2011
###
expense-current year
5
###
6
###
1,500.00
Leasehold Improvements
7)
4
###
Retained Earnings
Organizational Expenses
###
###
7
###
SUBTANTIVE PROCEDURES
Obtain an analysis of ledger accounts for intangibles
Examine documentation supporting intangibles
Vouch additions or acquisitions of intangibles assets during the period

Evaluate write-offs during the year
Evaluate FS presentation and disclosure
Evaluate amortization policy and verify computation of amortization


Problem 2-1
Purchased recipes and secret formulas
Operating and broadcast rights
Goodwill purchased in a business combination
A license to manufacture steroids by means of governmen
Initial franchise fees paid
Cost of purchasing a patent
Legal cost of acquiring a patent
Amount paid to a lessor for exclusive right to rent a facility
Total intangible assets (including goodwill)
150,000.00
112,300.00
400,300.00
333,780.00
100,500.00
150,000.00
180,000.00
for 10 years
###
a. How much should the franchise be initially recognized?

Initially, an entity shall measure an intangible asset at cost. (PAS 38)
Entry:
12/31/2012 Franchise
Discount on note payable
Cash
Notes Payable
###
###
(a)
###
###
PV factor of an annuity due of 1 at 12% for 3

periods
2.6901
Downpayment
Present value of notes payable (10,000,000 x 2.6901)
Total cost of franchise
###
###
### (a)
Notes payable
Present value of notes payable
Discount on notes payable
###
###
###
b. What is the carrying value of the franchise as of December 31, 2012?

Carrying value of franchise, 12
Total cost of franchise

Amortization
Carrying value of franchise, 12
###
###
###
###
Entry:
12/31/2013
Amortization of Franchise (36,901,000/30

Franchise
###
###
c.What adjusting journal entries should be proposed correct the franchise account balanc
Entry made by the company's accountant:
12/31/2012
Franchise expense
Cash
Notes Payable
###
###
###
Adjusting entries:
12/31/2012
Franchise
Discount on note payable
Franchise expense
###
###
###
se account balance as of December 31, 2012?
d. Assuming that the franchise has an infinite life, the expected yearly cash flow is P4,0
rate as of December 31, 2012 is 13%, what amount of impairment loss should be recogn
Carryingvalue
amount
Present
of cash flows
(4,000,000/13%)
Impairment loss
###
###
###
Entry:
12/31/2012
y cash flow is P4,000,000, and that the prevailing market

should be recognized on the franchise?
Impairment Loss
Franchise
###
###
###
2. A. Cost to obtain patent, January 5, 2005

LESS: 2005 Amortization (620,000/20 year
Carrying Value, December 31, 2005
B.

LESS: Amortization 2006-2007 (31,000x2)
C.

LESS: Amortization 2008-2009
Acquisition of related patent
New Carrying Value
LESS: Amortization (17 years)

LESS: Amortization (2011 - 2012)
Impairment Loss
Php 620,000.00
31,000.00
###
Php 589,000.00
62,000.00
###
527,000.00
62,000.00
Php 465,000.00
654,385.00
1,119,385.00
65,846.00
###
1,053,539.00
131,692.00
###
1
2
3
4
5
6
7
8
9
10
11
12
Item 1&2: Research and Development Expense and Intangible Asset

R&D Expense
20x0
Machinery customized to manufacture microchip implant
1,200,000
Depreciation of the above equipment
Allowance to human hosts used in experiments
600,000
Consulting fees of Dr. Warwick, of Cybernetics Dept.
300,000
Modification of the design of microchip
405,000
Design of tools, jigs, molds and dies involved in nanotechno
510,000
Lab research aimed at discovery of nanotechnology
555,000
Raw Materials-silicon, microprocessors, etc for its prototype
Troubleshooting during breakdown during commercial produ
Routine ongoing efforts to refine and improve the existing p
Design, construction, testing of pre-production prototype
Quality control during commercial production
TOTAL
3,570,000
#1
Item 3: Adjusting Journal Entries

(1) Research and Development Expense
Plant, Property and Equipment
(2) Plant, Property and Equipment
Retained Earnings
1,200,000
120,000
Item 4: Will the machine not be capitalized in 20x1 when Company established
ANSWER: No, it will not be capitalized. The standard prohibits the reinstating as an intan
at a later date, and expenditure that was originally charged to expense
Item 5: How would you answer item 1 if the same machinery has alternative us
ANSWER: The Depreciation expense for the machine will be recorded as Research and D
Expense for year 20x0.
Machinery customized to manufacture microchip implant

Depreciation of the above equipment
Allowance to human hosts used in experiments
Consulting fees of Dr. Warwick, of Cybernetics Dept.
Modification of the design of microchip
R&D Expense
20x0
120,000
600,000
300,000
405,000
Design of tools, jigs, molds and dies involved in nanotechno

510,000
Lab research aimed at discovery of nanotechnology
555,000
Raw Materials-silicon, microprocessors, etc for its prototype
Troubleshooting during breakdown during commercial produ
Routine ongoing efforts to refine and improve the existing p
Design, construction, testing of pre-production prototype
Quality control during commercial production
TOTAL
2,490,000
ngible Asset
R&D Expense
20x1
-
#2
Intangible Asset
20x0
20x1
156,000 *not sure if research or devt
450,000
125,000
110,000
150,000
991,000
#1
#2
1,200,000
*not sure huhuhu
120,000
Company established feasibility in that year?

he reinstating as an intangible asset,
nally charged to expense. [IAS 38.71]
nery has alternative use in the Company?

corded as Research and Development
R&D Expense
20x1
-
Intangible Asset
20x0
20x1
-
156,000
450,000
125,000
110,000
150,000
991,000
LAVIET OOZE
Worksheet for Adjustment of Intangibl
December 31, 20x0
16-Feb Cash
Share Capital
Client Entries
10,000,000
Operating Expense - Fees

Cash
Intangibles - Organization Costs
Cash
10,000,000
1,000,000

1,000,000
500,000
Operating Expense - Organization Costs

500,000
1-Mar Operating Expense - Fees

Operating Expense - License
Cash
1,000,000
500,000
1-Apr Intangibles - Trademark

Ordinary Share Capital
Share Premium
1,100,000
1-Oct Property & Equipment

Cash
5,000,000
31-Dec Operating Expense - R&D salary

Operating Expense - R&D dep'n
Cash
Acc. Dep'n
Should-be Entries
Cash
Patent
1,500,000
Intangibles - Trademark
1,000,000
100,000
Research & Development Costs
5,000,000
700,000
50,000
Operating Expense - R&D salary

700,000 Operating Expense - Patent amortization
50,000
LAVIET OOZE
Worksheet for Adjustment of Intangibles
December 31, 20x0
Cash
Share Capital
Should-be Entries
10,000,000

Cash
Cash
10,000,000
1,000,000
no adjusting enttry
1,000,000
500,000
Patent
Cash
1,500,000
Intangibles - Trademark
Share Premium
1,100,000

Cash
5,000,000
Operating Expense - R&D salary

Operating Expense - Patent amortization
Cash
Patent
Research and Development Costs
Adjusting Entries
no adjusting entry

500,000
Intangibles - Organization Costs
1,500,000
Patent
Operating Expense - License
no adjusting entry
1,000,000
100,000
700,000
50,000
75,000

5,000,000
Property & Equipment
Acc. Dep'n
Amortization of patent
Research and Development Costs
700,000
Patent
75,000
50,000
sting Entries
500,000
500,000
1,500,000
1,000,000
500,000
5,000,000
5,000,000
50,000
75,000
50,000
75,000
1.
Legal fees
Application and license fees
Cost of patent
Php
100,000
500,000
600,000
2.
Warehouse for prototypes
Cost of capitalized R&D
Php
Php
5,000,000
5,000,000
Php
2,000
550
1,100,000
3.
Ordinary shares
Multiply by: Market value
Cost of trademark
4.
Patent
Less: Amortization
Trademark
Less: Amortization
Carrying amount of intangibles
as of Dec 31, 20x0
5.
Organization Costs
R&D - salaries
Amortization of patent
Amortization of R&D
Total amount charged to P/L
Php
Php
Php
600,000
75,000
Php
5,000,000
50,000
4,950,000
Php
Php
Php
(500,000)
(700,000)
(75,000)
(50,000)
(1,325,000)
525,000
1,100,000
6,575,000
Problem 2-5
1. Cash
Inventory
Property, plant and equipment
Intangible assets
Liabilitiies
Net Asset Value
Normal rate of return
Normal Earnings of ACA Inc.
840,000.00
2,400,000.00
4,400,000.00
1,000,000.00
###
6,740,000.00
9%
606,600.00
2. Accumulated net income from 2008- 4,650,000.00

Gain on disposal of fixed asset
###
3,650,000.00
Divide no. of years
5
Average earnings before president's bo
730,000.00
President's annual bonus
150,000.00
Average Historical Earnings
880,000.00
3. Computing goodwill and acquisition price
a) Using excess earnings for 10 years:
Net Assets
Average earnings
880,000.00
Deduct: Normal earnings
606,600.00
Average excess earnings
273,400.00
Goodwill
10 years
Acquisition Price
b) Using excess earnings capitalizes at 12%:
Net assets
273,400.00
Goodwill
12%
Acquisition Price
c) Using average earnings capitalized at 10%:
Net assets
Average earnings
880,000.00
Capitalization rate
10%
Net assets including goodwill
8,800,000.00
Net assets
6,740,000.00
Acquisition Price
d) Using present value of 10% for 10 years (annuity)
Net Assets
273,400.00
Goodwill
6.1446
Acquisition Price
###
###
###
###
###
###
###
###
###
###
###
###
Problem 2-6 Goodwill Impairment

a)
Purchase Price (80%)

Less: Fair Value (1,500,000,000.00 x 80%)
Goodwill
###
###
###
b)
Purchase Price
Less: Share in Net Loss (150,000,000 x 80%)
Carrying Value
###
###
###
Carrying Value
Less: Recoverable Amount (1,000,000,000 x 80
Impairment Loss
###
###
###
Allocation of Impairment Loss

Impairment Loss
Goodwill
Identifiable Assets
###
###
###
c)
There is no such thing as impairment recovery on goodwill
Problem 2-7
a)
Purchase Price
Fair Value
Goodwill
10,000,000.00
8,000,000.00
2,000,000.00
b)
Annual Payment
PV Factor of Annui
Value in Use
1,500,000.00
4.77
7,157,400.00
Allocation of Goodwill among Cash

Butuan
General Santos
Aklan
Total
Cash
Receivables
Inventories
Property and Equipm
Goodwill
Carrying Amount of
Cash Generating Unit
Value in Use
Impairment loss
Impairment loss
Applicable to Good
of Goodwill among Cash Generating Units

Fair Value
Share in GoodwiGoodwill
2,000,000.00
0.25
###
1,500,000.00
0.1875
###
4,500,000.00
0.5625
###
8,000,000.00
###
700,000.00
1,800,000.00
1,500,000.00
2,700,000.00
1,125,000.00
7,825,000.00
7,157,400.00
667,600.00
667,600.00
667,600.00
Problem 2-8 Comprehensive Problem, Various Intangible Assets

1)
Patent
Old Patent
Legal Expenses to obtain a patent
Fees paid to the government to process application
Total
###
225,000.00
###
Carrying Value as of December 31, 2013

Old Patent
###
13/15
New Patent
###
26/27
Total
2)
###
###
###
Franchise
Down Payment
PV of Annuity ( 100,000 X 4.111 )
Cost
###
411,100.00
###
Carrying Value as of December 31, 2013

Franchise
811,100
7.5/10
3)
4)
5)
6)
Amortization of Intangibles
Old Patent
725000
New Patent
435000
Franchise
811,100
Total
1/15
0.5/13.5
1/10
Purchase Price
Less:
Book Value
Excess Fair Value over Book Value
Goodwill
Intangibles
Patent
Franchise
Total
Loss on Patent Writeoff
Amortization of Patent
Amortization of Franchise
Continuing Fee
(1.2M x 2%)
###
944000
100000
Php 48,333.33
16,111.11
81,110.00
###
80%
80%
80%
###
755,200.00
80,000.00
###
###
608,325.00
###
###
64,444.44
81,110.00
24,000.00
Total Effect on Net income (deductions)
###
BANAWE CORPORATION
Analysis of Intagibles and Related Accounts
December 31, 2013
Client Entries
Correct Entries
Dr
Date
2013
30-Jun Patent
1-Jul Patent
Cash
Cr
200,000
200,000
300,000
300,000
Patent
Share Premium
Operating Expense - Legal Costs
Cash
31-Dec no journal entry
Amortization expense - Patent

Patent
Retained Earnings
Amortization expense - Copyright
Copyright
Retained Earnings
Copyright

Copyright
31-Dec Goodwill
(credit account)
31-Dec Amortization expense - Goodwill
Goodwill
31-Dec Intangibles - R&D
Cash/Accounts Payable
250,000
250,000
50,000
Operating Loss
(credit account)
no journal entry
50,000
791,000
791,000
Research & Development Expense

Cash/Accounts Payable
Amortization Expense - R&D
R&D
CORPORATION
es and Related Accounts
ber 31, 2013
orrect Entries
Adjusting Entries
Dr
Cr
300,000
200,000
100,000
300,000
300,000
15,000
Dr
Patent
Share Premium
100,000

Patent
300,000
100,000
300,000
Amortization expense - Patent

Patent
15,000
15,000
10,000
10,000
20,000
Retained Earnings
Copyright
833
10,000
10,833
Retained Earnings
Copyright
Copyright
9,167
9,167
10,000
10,000
833
10,000
9,167
250,000
250,000
Retained Earnings
Goodwill
Goodwill
Amortization expense - Goodwill
791,000
791,000
9,500
9,500
15,000
20,000
10,833
9,167
SOP 98-5,
250,000
250,000
50,000
50,000
Research & Development Expense 791,000

Intangibles - R&D
R&D
Cr
791,000
9,500
9,500
SOP 98-5, Reporting on the Costs of Start-Up Activities
BANAWE CORPORATION
Working Paper for Adjustments of Intangibles and Other R
December 31, 2013
Date
2013
Jan 1
Particulars
Ending Balance, unadjusted
Patent
Php
Add (Less): Adjustments

Jun 30 Error in recording of patent at market value
Jul 1 Error in capitalizing of legal costs
700,000
INTANGIBLES (Dr)
Copyrights
Php
100,000
(300,000)
Dec 31 Amortization of Patent

Failure to amortize copyright, Barbel
(15,000)
(20,000)
Failure to amortize copyright, Marvel

Amortization of copyright, Carvel
Error in recording initial operating losses
Reversal of error in recording amortization
Error in capitalization of R&D expense
Amortization of patent used in R&D
Adjusted Balance
i
ii
iii
Amortization Expense - Patent

Amortization Expense - Copyright
Total Amortization Expense
Salaries of Research Staff
Patent only for the project
Equipment with no other use
Cost of pilot models
Total Research Expense
Amortization Expense - Goodwill
Amounts to be charged in profit/loss
180,000
(10,833)
(9,167)
Php
485,000
Php
15,000
29,167
44,167
Php
Php
Php
Php
Php
281,000
180,000
200,000
130,000
791,000
(300,000)
50,000
(9,500)
(259,500)
Php
140,000
BANAWE CORPORATION
or Adjustments of Intangibles and Other Related Accounts
December 31, 2013
INTANGIBLES (Dr)
Goodwill
Php
450,000
Research NEMO
Php
Name of Account
Php
250,000
Php
Cr
981,000
Share Premium
(250,000)
50,000
Dr
Amortization Expense - Patent

Retained Earnings
Retained Earnings
Retained Earnings
Amortization Expense - Goodwill
(791,000) Research & Development Expense
(9,500) Amortization Expense - R&D
180,500
Php
Php
100,000
300,000
15,000
10,000
10,000
10,000
833
9,167
250,000
50,000
791,000
9,500

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Intangibles Worksheet

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Adjustments Required

Cost of Goods Sold

Cost of Goods sold

Obtain an analysis of ledger accounts for intangibles

Evaluate amortization policy and verify computation of amortization

Obtain an analysis of ledger accounts for intangibles

Obtain an analysis of ledger accounts for intangibles

a. How much should the franchise be initially recognized?

PV factor of an annuity due of 1 at 12% for 3

b. What is the carrying value of the franchise as of December 31, 2012?

Total cost of franchise

Amortization of Franchise (36,901,000/30

se account balance as of December 31, 2012?

y cash flow is P4,000,000, and that the prevailing market

2. A. Cost to obtain patent, January 5, 2005

Carrying Value, December 31, 2005

Carrying Value, December 31, 2007

Carrying Value, December 3, 2010

Item 1&2: Research and Development Expense and Intangible Asset

Item 3: Adjusting Journal Entries

Machinery customized to manufacture microchip implant

Design of tools, jigs, molds and dies involved in nanotechno

Company established feasibility in that year?

nery has alternative use in the Company?

Operating Expense - Fees

Operating Expense - Fees

Operating Expense - Organization Costs

1-Mar Operating Expense - Fees

1-Apr Intangibles - Trademark

1-Oct Property & Equipment

31-Dec Operating Expense - R&D salary

Operating Expense - R&D salary

Operating Expense - Fees

Research & Development Costs

Operating Expense - R&D salary

Operating Expense - Organization Costs

Research & Development Costs

2. Accumulated net income from 2008- 4,650,000.00

Problem 2-6 Goodwill Impairment

Purchase Price (80%)

Allocation of Impairment Loss

There is no such thing as impairment recovery on goodwill

Allocation of Goodwill among Cash

of Goodwill among Cash Generating Units

Problem 2-8 Comprehensive Problem, Various Intangible Assets

Carrying Value as of December 31, 2013

Carrying Value as of December 31, 2013

Total Effect on Net income (deductions)

31-Dec no journal entry

Amortization expense - Patent

31-Dec no journal entry

31-Dec no journal entry

31-Dec no journal entry

Amortization expense - Copyright

Research & Development Expense

Operating Expense - Legal Costs

Amortization expense - Patent

Research & Development Expense 791,000

SOP 98-5, Reporting on the Costs of Start-Up Activities

Add (Less): Adjustments

Dec 31 Amortization of Patent

Failure to amortize copyright, Marvel

Amortization Expense - Patent

Amortization Expense - Patent