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

6-2

(Amsterdam Enterprises)
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.

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 7/11
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

Chapter 6 - Intangible Assets

6-3

6-4

(May Company)
Patents
Cost
Less accumulated amortization
36,000 + (156,000 8)
License
Cost (80 x 600 x 2/3)
Less accumulated amortization (32,000/4)
Trademark
Cost (80 x 600 x 1/3)
Less accumulated amortization (16,000/4)
Goodwill (12M 8M)
Total intangible assets

P192,000
55,500
P 32,000
8,000
P 16,000
4,000

136,500

24,000

12,000
4,000,000
P4,172,500

(July, Inc.)
2005

Jan. 3

Patents
Cash

196,000
196,000

2005-2008

Dec. 31

2009

Jan. 1
Dec. 31

2010

Jan. 1

Amortization Expense - Patents

Accumulated Amortization-Patents
196,000 / 10

19,600

Legal Fees
Cash

28,000

Amortization Expense
Accumulated Amortization-Patents

19,600

Patents
Cash

60,000

Amortization Expense
Accumulated Amortization-Patents

15,800

19,600

28,000
19,600

60,000

2010-2012

Dec. 31

15,800

196,000 (19,600 x 5) = 98,000

(98,000 + 60,000) / 10 = 15,800
2013

July 1

Amortization Expense
Accumulated Amortization-Patents
15,800 x 6/13 = 7,900
Loss from Writeoff of Patents
Accumulated Amortization-Patents
Patents
196,000 + 60,000 = 256,000
98,000 + (15,800 x 3.5 yrs) = 153,300

59

7,900
7,900
102,700
153,300
256,000

Chapter 6 - Intangible Assets

6-5

(Boston Company)
a.
Patent cost
Estimated useful life
Amortization per year
Amortization expense for 2010 (100,000 x 6/13)
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 = 50,000
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.

6-6

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

50,000
P100,000

P200,000

(Summer Company)
2010
R & D Expense
Cash

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

2013

Dec. 31

6-7

Patents
Cash

1,200,000
1,200,000

Amortization Expense
Accumulated Amortization-Patents
(120,000-12,000) + 1,200,000 = 1,308,000
1,308,000/16 = 87,200
Loss from Writedown of Patents
Accumulated Amortization
Patents

(April Company)
Laboratory research
Modification of formulation
Testing
Searching for application
Depreciation of equipment (280,000/5)
R & D costs for 2013

87,200
87,200

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

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

60

Chapter 6 - Intangible Assets

6-8

(Autumn Company)
a.
2013
Franchise
Cash
Dec.
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
6,250,000/11 = 625,000; 625,000 x 1/2

312,500

Amortization Expense
Accumulated Amortization-Patents
750,000 x 9.5/11 = 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

R&D=200,000+1,400,000+600,000+100,000= 2,300,000
(1,000,000 / 5) x = 100,000

6-9

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

6-10

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

(Global Computer Corporation)

a.
R & D Expense
Software Costs
Cash
b.

6-11

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

P6,240,000
7,000,000
P 760,000

800,000
500,000
1,300,000

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

(Sun Company)
a.
Downpayment
Present value of future payments
200,000 x 2.4869
Total cost

125,000
125,000

P400,000
497,380
P897,380

61

Chapter 6 - Intangible Assets

b.

Amortization Expense for 2013

897,380 / 10yrs

P89,738

c.

2013

Jan. 1

Franchise
Discount on Notes Payable
Cash
Notes Payable

Dec. 31

31

897,380
102,620
400,000
600,000

Interest Expense
Discount on Notes Payable
10% x 497,380 = 49,738

49,738

Amortization Expense
Accumulated Amortization-Franchise

89,738

49,738

89,738

2011

Jan. 1

6-12

Notes Payable
Cash

200,000
200,000

(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.

300,000
300,000

Recoverable amount of the CGU

P12,400,000
Carrying amount of the CGU
13,400,000
Impairment loss
P 1,000,000
Reported goodwill per ledger
400,000
Decrease in value of identifiable noncurrent assets
P 600,000
Impairment loss
1,000,000
Goodwill
400,000
Land (5/14 x 600,000)
230,769
Accumulated depreciation Building (6.2/14 x 600,000) 286,154
Accumulated amortization Patents (1/14 x 600,000)
46,154
Accumulated amortization Trademarks (.8/14 x 600,000) 36,923

62

Chapter 6 - Intangible Assets

MULTIPLE CHOICE QUESTIONS

Theory
MC1
D
MC2
B
MC3
A
MC4
B
MC5
B

MC6
MC7
MC8
MC9
MC10

Problems
MC21
D
MC22
A
MC23
C
MC24
B
MC25

MC26
MC27
MC28
MC29
MC30
MC31
MC32
MC33
MC34
MC35
MC36
MC37
MC38
MC39
MC40
MC41
MC42
MC43
MC44
MC45

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

D
B
D
B
C

MC11
MC12
MC13
MC14
MC15

D
A
D
B
A

MC16
MC17
MC18
MC19
MC20

B
C
C
D
C

244,000 + 100,000 = 344,000

P0
750,000 + 150,000 = 900,000
1,200,000 x 2/50 = 48,000; (750,000 10) x 2/13 = 12,500
60,000 x 2/13 = 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
200,000 + (100,000 x 2.91) = 491,000
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 1.5/11 = 216,000
40,000 + 5,000 = 45,000
900,000 x 7/11 = 630,000
210,000 + 300,000 + 400,000 + 220,000 + 260,000 = 1,390,000
1,500,000 30 = 50,000
1,000,000
480,000 10 = 48,000
(480,000 x 5/11) + 200,000 = 440,000; 440,000 10 = 44,000
440,000 (44,000 x 3.5 yrs) = 286,000
270,000 x 6/11 = 162,000; 162,000 3 = 54,000; 162,000 54,000 = 108,000
1,150,000 525,000 = 625,000; 700,000 625,000 = 75,000
1/5=20%; Depreciation is the higher rate which is 20%; thus carrying amount is 80%

1,500,000 5,000,000 = 30%; 30% x 2,500,000 = 750,000

63