BM2015

NAME: DATE: SCORE:

ACTIVITY

Jeremiah Corporation has provided the following information on intangible assets as follows:

a. A patent was purchased from Isaiah Company for P5,000,000 on January 1, 20x1. On the acquisition date, the
patent was estimated to have a useful life of 10 years. The patent had a net book value of P5,000,000 when
Isaiah sold it to Jeremiah.
b. On February 2, 20x2, a franchise was purchased from Daniel Company for P2,160,000. The contract that runs
for 20 years provides that 5%of revenue from the franchise must be paid to Daniel. Revenue from the franchise
for 20x2 was P8,000,000.
c. Jeremiah incurred the following research and development costs in 20x2:

Materials and equipment P462,000

Personnel 657,000
Indirect costs 329,000
Total P1,448,000

Because of the recent events, Jeremiah, on January 1, 20x2, estimates that the remaining useful life of the patent
purchased on January 1, 20x1, is only five (5) years from January 1, 20x2.

1. On December 31, 20x2, the carrying value of the patent should be P3,600,000
Solution:

Acquisition cost of patent on Jan 1, 20x1 5,000,000

Less: Annual Depreciation (5,000,000 / 10 years) (500,000)
Carrying amount on Dec 31, 20x1 4,500,000
Divide by: Revised useful life (4,500,000 / 5 years) (900,000)
Carrying amount on Dec 31, 20x2 3,600,000

2. The unamortized cost of the franchise on December 31, 20x2 should be P2,061,000
Solution:

Acquisition cost of patent on Feb 1, 20x2 2,160,000

Less: Amortization (2,160,000 / 20 years x 11/12) (99,000)
Carrying amount on Dec 31, 20x2 2,061,000

3. How much should be charged against Jeremiah’s income for the year ended December 31, 20x2?
P2,847,000
Solution:

Research and development costs 1,448,000

Amortization of patent 900,000
Amortization of franchise 99,000
Franchise revenue paid to Daniel (8,000,000 x 5%) 400,000
Total 2,847,000
Rubric for grading (3 items x 5 points):
CRITERIA POINTS
Correct accounts and amounts used. 3
Computed final amounts are correct and balanced. 2
TOTAL 5

01 Activity 1 *Property of STI

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