ACTIVITY

TRUE OR FALSE
Instruction: Type 1 if True, type 2 if False.

1. Research cost are expensed immediately.

2. Intangible assets are measured at cost.

3. Internally generated customer list, mastheads, and publishing tiles are capitalized as

intangible assets.

4. Cost of successfully defending an asset in a litigation is capitalized.

5. Organizational cost incurred to organize the company is capitalized as intangible

asset.

6. Internally generated goodwill is not recognized.

7. Conceptual formulation of design of new possible product or process alternatives is

an example of development cost.

8. Routine or periodic alteration of existing product is an example of development cost.

PROBLEM

Mining Company acquired a patent on an oil extraction technique on January 1, 2016 for
P5,000,000. It was expected to have a 10-year life and no residual value. Mining uses
straight-line amortization for patents. On December 31, 2017, the expected future cash
flows expected from the patent were expected to be P600,000 per year. The prevailing
interest rate is 8%. At what amount is the impairment loss for the period? What amount
should the patent be carried on the December 31, 2017 balance sheet?

ASSUME: Patent has indefinite useful life