Chapter 6 - Intangible Assets

CHAPTER 6
INTANGIBLE ASSETS
Discussion Question No. 21
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
6-1.

6-2.

Expense, cost of internally developed publishing title is not allowed to be capitalized.

Intangible
Expense
Intangible
Intangible
Prepaid expense
With alternative use, PPE; otherwise, unrecoverable cost, R and D expense
Charged to RE
Expense
Intangible
Intangible
Expense
Expense, copyright shall be written off in profit or loss
Expense
Expense
PPE
Expense
Expense
PROBLEMS

(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)

Fees paid to Phil. Patent Office

Drawings required by the patent office
Legal costs of filing patent
Patent cost, January 1, 2016
Less amortization of patent for years 2016 and 2017
(59,700/ 10) x 2 yrs.
Patent carrying value, December 31, 2017

(c)

Patent carrying value at December 31, 2018 (59,700 x 7/10)

Remaining estimated useful life at January 1, 2019
Amortization expense for year 2019

P 41,790

5
P 8,358

(d)

Carrying value, January 1, 2019

Less amortization expense for 2019
Carrying value, December 31, 2019

P41,790
8,358
P33,432

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

(May Company)
Patents
Cost
P192,000
Less accumulated amortization 36,000+(156,000/8) 55,500
License
Cost (100 x 600 x 2/3)
P 40,000
Less accumulated amortization (40,000/4)
10,000
Trademark
Cost (100 x 600 x 1/3)
P 20,000
Less accumulated amortization (20,000/4)
5,000
Goodwill (12M 9M)
Total intangible assets

63

P 136,500
30,000
15,000
3,000,000
P3,181,500

Chapter 6 - Intangible Assets

6-3.

(July, Inc.)
2009

Jan. 3

Patents
Cash

196,000
196,000

2009-2010

Dec. 31

Amortization Expense Patents (196,000/10)

Accumulated Amortization-Patents

19,600

Legal Fees
Cash

28,000

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

2011

Jan. 1
2011-2013
Dec. 31

28,000
19,600

2014

Jan. 1
2014-2016
Dec. 31

60,000
15,800

2017

July 1

6-4.

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

102,700
153,300
256,000

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

6-5.

7,900

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

1,800,000
P2,200,000

(Boston Company)
(a)

Amortization expense for 2014 (500,000/5) x

P 50,000

(b)

Carrying amount, December 31, 2015 (500,000 150,000)

Estimated recoverable amount
Impairment loss at December 31, 2015

P350,000
150,000
P200,000

(c)

Written down value of patent at December 31, 2015

Less amortization for 2016
150,000 / 3
Carrying amount at December 31, 2016

P150,000

Sound value at January 1, 2017

Carrying amount at December 31, 2016
Increase in value
Impairment loss
Recovery of previous impairment loss through lower
amortization (100,000 50,000)
Revaluation surplus in 2017

P600,000
100,000
P500,000

(d)

64

50,000
P100,000

P200,000
50,000

150,000
P350,000

Chapter 6 - Intangible Assets

6-6.

(Summer Company)
2014

R & D Expense
Cash

500,000

Patents
Cash
Amortization Expense
Accumulated Amortization-Patents

120,000

500,000

2015

Jan. 1
Dec. 31

120,000
12,000
12,000

2016

Jan. 1

Patents
Cash

1,200,000
1,200,000

2016-2017

Dec. 31

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

2017

Dec. 31

6-7.

Loss from Write down of Patents

Accumulated Amortization
Patents

1,320,000

(April Company)
Laboratory research
Modification of formulation
Testing
Searching for application
Depreciation of equipment (280,000/5)
R & D costs for 2016

6-8.

1,133,600
186,400

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

(Autumn Company)
a.
2016
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
Equipment
Accumulated Depreciation-Equipment
Cash

2,300,000
1,000,000
100,000
3,200,000

200,000+1.4M+600,000+100,000=2.3M; (1M.5) x =100,000

6-9.

(Global Computer Corporation)

(a)

(b)

R & D Expense
Software Costs
Cash

800,000
500,000

Amortization Expense
Accumulated Amortization-Software Costs

125,000

1,300,000

0.5M/4 = 125,000 (higher); 0.5M x 1/5 = 100,000

65

125,000

Chapter 6 - Intangible Assets

6-10.

(Sun Company)
(a)

Downpayment
Present value of future payments
300,000 x 2.4869
Total cost

(b)

Dec. 31
31
2017
Jan. 1

P 124,607

Franchise
Discount on Notes Payable
Cash
Notes Payable
Interest Expense
Discount on Notes Payable (10% x 746,070)
Amortization Expense
Accumulated Amortization-Franchise

1,246,070
153,930
500,000
900,000
74,607
74,067
124,607
124,607

Notes Payable
Cash

300,000
300,000

(Winter Company)
(a)

(b)

6-12.

746,070
P1,246,070

Amortization Expense for 2016

1,246,070 / 10 yrs

(c)
2016
Jan. 1

6-11.

P 500,000

Cash purchase price

Fair value of net assets
(1,000,000 + 1,700,000 + 5,900,000 2.360,000)
Goodwill
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, including goodwill
Impairment loss
Impairment Loss
Goodwill

(b)

300,000
300,000

Recoverable amount of the CGU

Carrying amount of the CGU, including goodwill
Impairment loss
Credited to goodwill
Decrease in value of identifiable noncurrent assets
Impairment loss
Goodwill
Land (5/13 x
Accumulated
Accumulated
Accumulated

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

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

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

66

400,000
230,769
286,154
46,154
36,923

Chapter 6 - Intangible Assets

MULTIPLE CHOICE QUESTIONS

Theory
MC1
MC2
MC3
MC4
MC5

D
D
C
B
B

MC6
MC7
MC8
MC9
MC10

A
C
D
A
D

MC11
MC12
MC13
MC14
MC15

B
D
B
D
C

MC16
MC17
MC18
MC19
MC20

B
A
B
D
C

Problems
MC21

Patents
Franchise
Total cost of intangible assets

P244,000
100,000
P344,000

MC22

Initial franchise fee

MC23

Trademarks
Patents
Total intangible assets

P750,000
150,000
P900,000

MC24

Initial payment
Present value of four annual payments (100,000 x 2.91)
Cost of franchise

P200,000
291,000
P491,000

MC25

Patent (1,200,000 x 2/50)

Copyright (750,000/10 = 75,000; 75,000 x 2/12)
Franchise (60,000 x 2/12)
Total amortization amount for 2015

P48,000
12,500
10,000
P70,500

MC26

Patent A (125,000 10 = 12,500;

Patent B (272,500 5 = 54,500 x )
Patent C (656,200 17)
Total patent amortization expense

P12,500
27,250
38,600
P78,350

MC27

Amortization expense for 2013 (340,000 10 = 34,000 x )

P17,000

MC28

Cost
Accumulated amortization (34,000 x 1.5 years)
Carrying value, January 1, 2015

MC29

Revised amortization expense for 2016 (289,000 5)

MC30

There is no capitalized cost of the asset that will be subject to

amortization.

P1,000,000

MC31

Laboratory research
Testing for evaluation of new products
Modification of formulation of plastic products
Searching for application of new research findings
Total research and development expense

MC32

Depreciation of equipment
Materials used in R & D
Compensation cost of personnel in R & D
Outside consulting fees for R & D work
Indirect costs appropriately allocated to R & D
Total research and development expense

67

P340,000
51,000
P289,000
P57,800

P0
P68,000
24,000
6,000
19,000
P117,000
P210,000
300,000
400,000
220,000
260,000
P1,390,000

Chapter 6 - Intangible Assets

MC33

Patent amortization expense (152,000 8)

MC34

Loss from patent obsolescence (1,440,000 x 1.5/10)

MC35

Cost of Patent A only (40,000 + 5,000)

MC36

Patent amortization expense for 2015 (900,000 / 10 years)

Loss on obsolescence 900,000 - (90,000 x 4 years)
Charge against income during 2015

MC37

Accumulated amortization (1,500,000 30)

P50,000

MC38

Patent amortization for 2011 (480,000 10)

P48,000

MC39

Carrying amount, beginning of 2012 (480,000 x 5/10)

Additional capitalized cost
New depletable cost
Revised remaining life
Patent amortization expense for 2012

P240,000
200,000
P440,000
10 years
P44,000

MC40

New depletable cost (see No. 39)

Depletion for 3.5 years (44,000 x 3.5 years)
Carrying amount at time of obsolescence /Loss

P440,000
154,000
P286,000

MC41

Cost of patent
Accumulated amortization (270,000/10 = 27,000; 27,000 x 4)
Carrying amount, beginning of 2015
Revised depreciation expense for 2015 (162,000/3)
Patent, net of accumulated amortization, December 31, 2015
OR 270,000 x 6/10 x 2/3 = 108,000

P270,000
108,000
P162,000
54,000
P108,000

MC42

SL =1/5 = 20%
Revenue = 25%
Depreciation is the higher rate, 25%; thus carrying amount is

MC43

MC44

MC45

P19,000
P216,000
P45,000
P 90,000
540,000
P630,000

75%

SL rate = = 25%
Revenue = 2.4M/12M = 20%
Amortization in 2016: Higher rate is 25%; 25% x 6M

P1,500,000

Cumulative amortization under straight line

2/4 = 50%
Cumulative amortization under revenue method
2.4M + 4.2M = 6.6M; 6.6M/12M = 55%
Amortization in 2017:
55% x 6M = 3.3M; 3.3M 1.5M

P1,800,000

SL rate = 1/5 = 20%

Revenue = 1,500,000 5,000,000 = 30%
Higher is 30%; 30% x 2,500,000

P750,000

MC46

Purchase price
Fair value of net assets (115.0M 52.5M)
Goodwill

P70,000,000
62,500,000
P7,500,000

MC47

Goodwill

P1,000,000

68