FINACC4

ASSIGNMENT 4
INTANGIBLE ASSETS

Submit all your answers in an Excel File. Use one worksheet (not file) for each problem.

PROBLEM 1
Transactions during 2020 of the newly organized Uranus Company included the following:

Jan 2 Paid legal fees of P150,000 and stock certificate costs of P83,000 to
complete organization of the corporation.

Jan 15 Hired a clown to stand in front of the corporate office for 2 weeks and hand
out pamphlets and candy to create goodwill for the new enterprise. Clown
cost, P10,000; pamphlets and candy, P5,000.

April 1 Patented a newly developed process with costs as follows:

Legal fees to obtain patent P429,000
Patent application and licensing fees 63,500
Total P492,500

It is estimated that in 6 years other companies will have developed improved

processes, making the Uranus Company process obsolete.

May 1 Acquired both a license to use a special type of container and a distinctive
trademark to be printed on the container in exchange for 6,000 shares of
Uranus’s no-par ordinary shares selling for P50 per share. The license is
worth twice as much as the trademark, both of which may be used for 6
years.

July 1 Constructed a shed for P1,310,000 to house prototypes of experimental

models to be developed in future research projects.

Dec 31 Incurred salaries for an engineer and chemist involved in product

development totaling P1,750,000 in 2010.

Required:
a. Prepare the journal entries for the above transactions.
b. Determine the following:
i. Cost of patent
ii. Cost of licenses
iii. Cost of trademark
iv. Carrying amount of intangible assets as of December 31
v. Total amount that should be expensed
PROBLEM 2
The Change Company acquired several small companies at the end of 2019 and, based on the
acquisitions, reported the following intangibles in its December 31, 2019 statement of financial
position:
Patent P200,000
Copyright 400,000
Tradename 350,000
Computer software 100,000
Goodwill 900,000

The company's accountant determines the patent has an expected life of 10 years and no
expected residual value, and that it will generate approximately equal benefits each year. The
company expects to use the copyright and tradename for the foreseeable future. The
accountant knows that the computer software is used in the company's 120 sales offices. The
company has replaced the software in 60 offices in 2020 and expects to replace the software in
40 more offices in 2021 and the remainder in 2022.

On December 31, 2020, there are no indications of impairment of patent and computer
software. The following information relates to the other intangible assets:
a. Because of the rampant piracy, the copyright is expected to generate cash flows of just
P8,000 per year.
b. The tradename is expected to generate cash flows of P15,000 per year.
c. The goodwill is associated with Change's Magic Sarap Manufacturing reporting unit. The
cash flows expected to be generated by the Magic Sarap Manufacturing reporting unit is
P200,000 per year for the next 25 years. The reporting unit has a carrying amount of
P3,000,000. (Research on how to impair goodwill and how to compute for
recoverable amount using this information.)

Assume that appropriate discount rate for all items is 5%.

Required:
a. Determine the following:
i. Total amortization of intangible assets in 2020
ii. Total loss on impairment in 2020
iii. Carrying amount of goodwill on December 31, 2020
iv. Carrying amount of other intangible assets on December 31, 2020
b. Prepare the journal entries for impairment and amortization on December 31, 2020.
PROBLEM 3
Cyclops Company has its own research department. However, the company purchases patents
from time to time. The following is a summary of transactions involving patents now owned by
the company.

 During 2014 and 2015, Cyclops spent a total of P459,000 in developing a new process
that was patented (Patent A) on April 1, 2016; additional legal and other costs of
P50,000 were incurred.

 A patent (Patent B) developed by Nanette Inventor, an inventor, was purchased for

P187,500 on December 1, 2017, on which date it had an estimated useful life of 12 ½
years.

 During 2016, 2017 and 2018, research and development activities cost P510,000. No
additional patents resulted from these activities.

 A patent infringement suit brought by the company against a competitor because of the
manufacture of articles infringing on Patent B was successfully prosecuted at a cost of
P42,600. A decision in the case was rendered in June 2018.

 On July 1, 2019, Patent C was purchased for P172,800. This patent had 16 years yet to
run.

 During 2020, Cyclops experienced P180,000 on patent development. However, the

company is still undecided as to how the patent, if approved by the Bureau of Patents,
will generate probable future economic benefits.

Assume that the legal life of each patent is also its useful life.

Required:
a. Prepare the journal entries for the above transactions and related amortization from 2014 to
2020.
b. Determine the following:
i. Patent A’s carrying amount on December 31, 2020
ii. Patent B’s carrying amount on December 31, 2020
iii. Patent C’s carrying amount on December 31, 2020
iv. Total amortization expense for the year ended December 31, 2020