INTANGIBLE ASSETS

Problem 1
During 2015, the following were acquired by KP Company
Trademarks and certification mars, P120,000
Cable television license and franchise, P95,000
FVN operating system (for a computer controlled machine), P65,000
Music copyrights, P70,000
Training costs for a specialized product line, P80,000
Covenants not to compete, P60,000
The amount to be included as tangible assets is

Problem 2
During the current year, an entity incurred the following costs to develop and produce a routine, low-
risk computer software product:

Completion of detailed program design or working model, P1,300,000

Cost incurred for coding and testing to establish technological feasibility, P1,000,000
Other coding costs after establishment of technological feasibility, P2,400,000
Other testing costs after establishment of technological feasibility, P2,000,000
Costs of producing product masters for training materials, P1,500,000
Duplication of computer software and training materials from product master, P2,500,000
Packaging product, P900,000

What amount should be capitalized initially as software cost?

Problem 3
On January 1, 20x1, ABC Co. generated a trademark. Costs incurred include the following:
Costs of materials and services used or consumed in generating
the trademark P50,000
Costs of employee benefits incurred in generating the trademark 10,000
Fees to register the trademark 5,000
Amortization of patents and licences that were used to generate
the trademark 2,000
Selling, administrative and other general overhead expenditures 30,000
Compute for the cost of the intangible asset

Problem 4
Daenerys Company is developing a medicine delivery device. Total expenditures incurred for the project
was P7,500,000 of which P3,400,000 was incurred before July 1, 2015 and P4,100,000 between July 1,
2015 and September 30, 2015. Daernerys Companys management team determined that the device will
generate probable future economic benefits and has achieved technical feasibility as of July 1, 2015.
The amount of development cost to be capitalized as an intangible asset is
Problem 5
Jon Company is involved in the distribution of electricity in Mindanao. Management was concern about
the entitys contribution to forest fires, as the heat generated from its system have been identified as a
major cause of these fires. Jon Companys research and technology division is developing an infrared
camera that may be attached to a helicopter. The camera is capable of identifying hot-spots in the system
and will enable management to take preventive actions

During 2015, the management spent P300,000 to develop the camera. In a presentation to the BOD on
December 20, 2015, the R&D teas was able to prove the technical feasibility of the project and how it
could aid the company in reducing repair cost as well as prevent any potential losses due to forest fires.
The team, however, has also informed the board that the existence of the technology needed to complete
the project is not yet available (pending approval from the government).

By June of 2016, management spent an additional P300,000. The R&D team has acquired the technology
needed for the camera. The team estimated that it will take another P150,000 to complete the project.
The board has only granted P40,000 to the said project.

By October 2016, additional cost of P25,000 was spent on the development of the camera. On this date,
the board decided to provide the necessary funds to complete the said project.

By December 11, 2016, after spending an additional P90,000, the camera was set for use.

The amount to be capitalized as intangible asset is:

Problem 6
From the following independent cases, identify the amount to be reported as amortization expense for
the year 2015

Purchased patent on January 1, 2015 for P2,000,000 and was expected to be a source of net
inflows for at least 15 years.
Purchased patent on January 1, 2015 for its fair value of P3,000,000 and was expected to be a
source of net cash inflows for at least 15 years. A firm commitment was agreed upon with another
entity that will purchase it in 5 years at 60% of its fair value at the date is was acquired.
Purchased a copyright in January 1, 2015 for P1,000,000 that has a remaining legal life of 50 years.
An analysis of consumer habits and market trends provides evidence that the copyrighted
material will generate net cash inflows for only 30 more years.
Acquired a patent for P500,000 and expects that the patent will be useful for a total estimated
production units of 12,000,000. In 2015, total units produced were 3,500,000
Purchased telecom license in January 5, 2015 for P20,000,000. The license has an initial term of
10 years. There is an established practice that grants a single renewal of telecom licenses at no
additional cost provided that the holder adheres to all the requirements set forth in the license
agreement. Management intends to comply with all the regulations as and when they are issued.
 Acquired patent on July 1, 2014 for P900,000. It was expected that the patent would last for
another 15 years. On July 1, 2015, the patent was successfully defended against an infringement
case in which the legal cost amounted to P65,000.
Problem 7
Sansa Company discloses the following items it had recorded in its intangible assets section during 2015
01/02/2015 Purchased franchise (8-year life) 3,500,000
07/01/2015 Purchased patent X (18 year useful life) 1,560,000
07/01/2015 Purchased patent Y (25 year useful life) 1,560,000
09/30/2015 Purchased copyright (20 year life) 4,560,0000
Amortization expense to be reported in 2015 is

Problem 8
On January 1, 2011 Filipinas Sports acquired the local broadcast rights of the 2015 Lion Dance Olympiad
slated on December 20, 2015 for advertising revenue commence from July 1, 2013.

Amortization expense to be reported for 2011 2015

Problem 9
On January 1, 2011, Plot Company leased land for an initial 10-year period with an option to extend the
lease for another 4 years on or before December 31, 2015.

On January 1, 2013, improvements made on the leased property was completed costing P144,000. The
improvement was estimated to have an estimated useful life of 10 years. By year-end, Plot Company
remains undecided whether it will extend the lease or not.

In 2015, Plot Company has decided it will make use of the extension clause.

Amortization/depreciation expense to be reported for 2011-2015

Problem 10
CK Company incurred the following costs during 2015
Quality control during commercial production including
routine testing of products P60,000
Laboratory research aimed at discovery of new knowledge 70,000
Engineering follow-through in an early phase of commercial production 15,000
Adaptation of an existing capability to a particular requirement or customers
need as part of continuing commercial activity 10,000
Trouble shooting in connection with breakdowns during commercial
production 30,000
Searching for application of new research findings 20,000

The total cost classified as R&D expense for 2015 is

Problem 11
DG Company incurred the following costs during 2015:
Equipment cost which has alternative uses in future R&D
projects over the next five years (straight line) P280,000
Materials consumed in R&D 60,000
Consulting fees paid to outsiders for R&D projects 100,000
Personnel costs for persons involved in R&D projects 150,000
Indirect costs reasonably allocable to R&D projects 50,000
Materials purchased for future R&D projects 30,000

Compute the amount to be reported as R&D expense

Problem 12
EE incurred the following costs during 2015:
R&D services provided by FF Company for EE Company P200,000
Design, construction and testing of prototypes 100,000
Routine, on going efforts to refine, enrich, or otherwise improve
Upon the qualities of an existing product 50,000
Radical modification to the chemical formulation 25,000
R&D Costs reimbursable under a contract to perform research and
development for GG company 125,000
Testing for evaluation of the new products 10,000
Compute the amount to be reported as R&D expense

Problem 13
During 2015, Orlando Corp incurred costs to develop and produce a routine low-risk computer software
product as follows:
Completion of detailed program design P150,000
Costs incurred
For coding and testing to establish technological feasibility 100,000
For coding after establishment of technological feasibility 240,000
For testing after establishment of technological feasibility 200,000
Costs of producing product masters for training materials 150,000
Duplication of computer software & training materials from
product masters (1,000 units) 250,000
Packaging product (500 units) 90,000
In Orlandos December 31, 2015 balance sheet, what amount should be capitalized as software cost
subject to amortization?

Problem 14
MJ Company capitalized P3,600,000on its new Mythical Beings software package. Revenues from 2015
(first year) sales are P3,000,000; additional future revenues from MYSTIC HEROES for the remainder of
its economic life through 2018 are estimated to be P17,000,000.

Amortization for 2015 is

Problem 15
During 2012, MK Company spent P15,000 developing its new VXN software package. Of this amount,
P6,600,000 was spent before technological feasibility was established. The package was completed on
December 31, 2012.

MK Company expects a useful life of 8 years for this product with total revenues of P48,000,000. During
its first year (2015), MK Company realizes revenues of P9,600,000.

Amortization for 2015 is

Problem 16
BN Company has recently took over LK Company at a cost of P20,000,000. BN Company acquired the
following assets at fair value:

Land and building 6,400,000

Production machinery 4,000,000
Inventory 3,600,000
Accounts receivable 1,400,000

In addition, LK Company owned but had not recognized the following:

Trademark 2,000,000
Patent for special coating formula 1,000,000

The amount of goodwill to be recognized arising from the acquisition is

Problem 17
The owners of ET Company are planning to sell its business to new interests. ET Company believes that
the selling price would be for an amount equal to the entitys net assets fair value plus goodwill
determined on the basis of capitalizing average regular net earnings at 10%. The fair value of ET
Companys net assets was P15,000,000. Cumulative earnings for the past five years amounted to
11,000,000 which includes an expropriation gain of P1,000,000 from year 4.

The amount of goodwill is

Problem 18
SH Company engaged you to assist in the acquisition of AC Company on January 2012. It was agreed that
AC Company would receive an amount for goodwill based on the capitalization of excess earnings at 40%.

The following information was taken from the records of AC Company.

Year Net income Net assets

2007 180,000 800,000
2008 194,000 900,000
2009 144,000 950,000
 2010 190,000 1,000,000
2011 197,000 1,050,000
905,000 4,700,000

The normal rate of return on the average net assets in the industry to which AC company operates id 10%.

The purchase price of AC Company is

Problem 19
On January 1, 2011, OP Company acquired all the assets and liabilities of N Company. N Company has a
number of operating divisions. Its toy cars division is regarded as a GCU unit. In paying 2,000,000 for the
bet asset of N Company, OP calculated that it acquired goodwill of P240,000. Goodwill was allocated to
each of the divisions and the assets and liabilities were measured at fair value at acquisition date.

At December 31, 2015, the carrying amount of the assets of the toy cars division were:

Factory building 250,000

Inventory 150,000
Brand name mk 50,000
Goodwill 50,000

There is a declining interest to toy cards because of aggressive marketing of computer based toys. The net
recoverable amount of the toy car division at December 31, 2015 was P423,000.

Determine the amount of impairment charged to

a. Factory building
b. Brand name
c. Inventory
d. Goodwill

Problem 20
PN Company has determined that its WMN division is a cash generating unit. The carrying amounts at
December 31, 2015 are as follows:
Factory 200,000
Land 150,000
Equipment 100,000
Inventory 50,000

PN Company calculated the value in use of the division to be P420,000. The inventorys net realizable
value is P50,000 while the fair value less cost of disposal of the land was P145,000.

Determine the amount of impairment charged to

a. Factory
b. Equipment
c. Land
d. Inventory