Echague Inc. holds a valuable patent on a precipitator that prevents certain types of air pollution.

Echague does not manufacture or sell the products and process it develops. Instead, it conducts
research and develops products and processes which it patents, and then assigns patents to
manufactures on a royalty basis. Occasionally it sells patents. The following presents the
summary of activities in relation to the aforementioned patent:

1. What is the correct cost of the patent upon initial recognition?

a. 620,000
2. What is the carrying value of the patent on December 31, 1999?
a. 589,000
3. What is the carrying value of the patent on December 31, 2003?
a. 845,625
4. What is the carrying value of the patent on December 31, 2005?
a. 1,323,529
5. What is the total loss from patent write off should be recognized in 2006?
a. 1,235,294
The following costs are generally incurred by a newly established entity:

How much from the above items can be recognized as intangible assets?
a. 1,944,000
B Corp. maintain the following items in its intangible account as of the fiscal year ended June 30,
2020:

Intangibles
Research AM123 65,650
Copyrights 63,000
Goodwill 32,000

Audit findings:

a) Research AM123 is for a research project which consists of the following charges:
Salaries of research staff 18,500
Patent acquired solely for the use in the 12,000
project
Special equipment acquired and useful for 10,000
various similar research activities
Patent acquired for use in several research 16,200
projects including Project AM123
Cost of pilot models 8,950
Total 65,650

The patents have generally been found to be useful for approximately ten years while
the special equipment was useful for five years. You have further discovered both
patents and the specialized equipment were acquired at the beginning of the fiscal year,
and that cost of models and salaries were incurred evenly throughout the fiscal year.
Amortization is yet to be made on the related intangibles.

b) The company’s copyrights were accounted for as follows:

Asset Acquisition Date Useful Life Cost
Copyright ABC January 2, 2016 25 years 30,000
Copyright XYZ July 15, 2017 15 years 33,000

You have discovered that the company made no amortizations on the above intangibles
from the year of acquisition.

c) The company’s goodwill was acquired as part of a business combination when it acquired
the net assets of its then rival, C Corp. at an acquisition cost amounting to P1,582,000 on
February 24, 2018. C’s net assets were carried in its books at P1,550,000 while their fair
value aggregated to P1,560,000.

d) The management has now decided to correct its past accounting treatment deciding to
use the straight-line method of amortizing intangibles computed to the nearest half-year.
1. What is the carrying value of Project 123 as of June 30, 2020?
a. 0
2. What is the carrying value of Patent as of June 30, 2020?
a. 14,580
3. What is the carrying value of Copyrights as of June 30, 2020?
a. 51,000
4. What is the carrying value of Goodwill as of June 30, 2020?
a. 22,000
5. How much should be recognized as research expense for the fiscal year 2020?
a. 43,070
6. How much is the amortization expense for the copyrights in fiscal year 2020?
a. 3,400
7. How much is the amortization expense for the goodwill in fiscal year 2020?
a. 0
On January 1, 2020, T Corp. acquired M Inc. net assets for a total of P10,000,000. M Inc. has
manufacturing plants in three countries. The fair market values of the identifiable net assets of
the operations from each country were as follows:
Country A 2,000,000
Country B 1,500,000
Country C 4,500,000

At the beginning of 2021, a new government is elected in country C. It has promulgated a new
legislation significantly restricting exports of T Corp.’s main product. As a result, and for the
foreseeable future, T Corp.’s production will be cut by 40%. On the same date, the carrying values
of Country C’s net assets were as follows:

Cash 700,000
Receivables 1,800,000
Inventories 1,500,000
Property and equipment, net 2,700,000
Goodwill ?
Payables 700,000

Moreover, the company originally estimated annual future net cash flows from its operations in
Country C at P1,500,000.

T uses straight line depreciation over a 10-year life for the country C identifiable assets and
anticipates no residual value. It is also estimated that the prevailing market rate of interest that
reflects current market assessments of the time value of money and the risks specific to Country
C cash generating unit was 15%.

1. How much is goodwill allocated to the CGU Country C upon acquisition?

a. 1,125,000
2. How much is the value in use of the CGU Country C as of January 1, 2021?
a. 4,294,426
3. How much from the total impairment loss should be recognized against goodwill of the
CGU Country C?
a. 1,125,000
4. What is the carrying value of the CGU’s property and equipment after impairment loss
recognition?
a. 1,932,492
5. Assuming that inventories had fair value less cost to sell of P1,500,000, what is the
carrying value of property and equipment after impairment loss recognition?
a. 1,676,656
L Co. owned the following items of property, plant and equipment as at December 31, 2020:
Land (at cost) 1,200,000
Office building (at cost) 1,550,000
Accumulated depreciation 281,250 1,268,750
Cutter (at cost) 650,000
Accumulated depreciation 330,000 485,000
Water desalinator (at fair value 1,890,000

Additional information (at December 31, 2020)

a) The straight-line depreciation is used for all depreciable items of PPE. Depreciation is
charged to the nearest month.
b) The office building was constructed on April 1, 2017. It is estimated useful life is 20 years
and it has an estimated residual value of P50,000.
c) The cutter was purchased on January 1, 2018, at which date it had an estimated useful
life of five years and an estimated residual value of P100,000.
d) The water desalinator was purchased and installed on January 1, 2019 at a cost of
P2,000,000 with estimated useful life of 10 years and estimated salvage value of P100,000.
On December 31, 2020, the desalinator was revalued to its fair value on that day.
Additionally, its useful life was increased to ten years and its residual value was increased
by P35,000.

The following transactions occurred during the year ended December 31, 2021:
a) On April 10, 2021, new irrigation equipment was purchased from P Supplies for P370,000.
On April 16, 2021, the business paid P5,000 to have the equipment delivered to the farm.
B Digger was contracted to install and test the new system. In the course of the
installation, pipes worth P4,000 were damaged and subsequently replaced by July 4. The
irrigation system was fully operational by July 10 and B Digger was paid P96,000 for his
services. The system has an estimated useful life of four years and no residual value. In
addition, the following taxes were paid by L Co. as part of the purchased price: refundable
taxes – P5,000 and non-refundable taxes P6,500.
b) On October 1, 2021, the cutter was traded in on a new model worth P400,000. A trade-in
allowance of P200,000 was received and the balance was paid in cash. The new machine’s
useful life and residual value were estimated at six years and P25,000, respectively.
c) On March 1, 2021, the turf farm’s owner, MC Logan decided to extend the office building
by adding three new officers and a meeting room. The extension commenced on March
10 and was completed by April 10 at a cost of P490,000. The extension is expected to
increase the useful life of the building by four years and increase its residual value by
P50,000.
d) On December 31, 2021, the fair value of the water desalinator was P1,800,000 and cost
to sell of P100,000. It’s value in use was P1,650,000.

1. Total cost of the new irrigation equipment acquired on April 10, 2021 is
a. 477,500
2. The gain (or loss) on trade in on October 1, 2021 is
a. 37,500
3. The depreciation expense of the office building in 2021
a. 80,250
4. The total depreciation expense in 2021
a. None of the above
* choices are (a) 332,500, (b) 416,500, (c) 273,625, (d) 412,750
5. The impairment loss to be charged to profit or loss in 2021 is
a. 14,500
The following balances have been extracted from the ledger of Annex Co. at September 30, 2021
Land at cost 200,000
Plant and machinery (Note 1) - cost 192,500
- accumulated depreciation 9/30/2020 72,187.50
Freehold buildings (Note 2) - valuation 822,000
- accumulated depreciation 9/30/2020 96,000

The following additional information is available:

a) On April 1, 2021 Annex Co. decided to sell one of its machines which had a carrying
amount of P4,100 on September 30, 2020. On April 1, 2021 the machine had a fair value
of P3,250 and met the “held for sale” criteria of PFRS5. The machine was still held by
Annex at the year end, although a buyer had been found. No adjustment to the above
balances has been made in respect of this machine. There have been no other changes
to plant and machinery in the current year.
b) Plant and machinery are depreciated using the reducing balance method at a rate of 20%
pa.
a. Annex carries its freehold buildings (Property A and Property B) under the
revaluation model. The latest revaluations were on October 1, 2020 but these
have not been reflected in the above balances. The following information is
available with regard to these properties.
Property A Property B
Date of purchase October 1, 2011 October 1, 2000
Useful life at purchase 40 years 50 years
Cost 200,000 500,000
Revaluation surplus at September 31,000 228,000
30, 2020
Carrying amount at September 30, 186,000 540,000
2020
Valuation at October 1, 2020 224,750 300,000

The useful lives of both properties are unchanged. Where possible, Annex Co. makes an annual
transfer between revaluation surplus and retained earnings in accordance with best practice.

1. Depreciation expense for the plant and machinery for the year ended September 30, 2021
is
a. 23,652.50
2. Total impairment loss to be recognized during the year ended September 30, 2021
a. 12,440
3. Total revaluation surplus to be closed to retained earnings during the year ended
September 30, 2021
a. 2,250
Determine the cost of the following items of investment property acquired by S Corp during 2016:

a) Land site for capital appreciation was acquired for P8,600,000. S paid P430,000
commission to a real estate agent. Costs of P135,000 were incurred to clear the land.
During the course of clearing the land, timber and gravel were recovered and sold for
P65,000.
b) Land and building were acquired to be held for lease under operating leases. The
company made a down payment of P4,000,000, issued P200 par ordinary shares with
market price of P240 per share and issued a three-year non-interest-bearing note for
P6,000,000. The note is payable in equal annual installments of P2,000,000 at the end of
each year from the date of purchase. Prevailing interest rate for similar note is 10%.
Thirty percent (30%) of the purchase price is allocated to the land. Round your PV factor
to four (4) decimal places.

1. What is the cost of land a)?

a. 9,100,000
2. What is the amount of cost allocated to building in 'b' ?
a. 9,641,660
The following information relates to A Co. for the year 2016:
Fair value at January 1, 2016 5,000,000
Fair value at December 31, 2016 6,000,000
Estimated disposal cost 300,000

Building held as investment property

Construction was completed at January 1, 2016 at a total cost of

Estimated useful life is 40 years with no 20,000,000

residual value
Fair value at January 1, 2016 19,000,000
Fair value at December 31, 2016 20,000,000
Estimated disposal cost 500,000

Rent revenue recognized during 2016 3,000,000

Compensation paid to personnel for 200,000
administration and security
Real property taxes applicable to 2016 120,000
Costs of maintenance paid to an outsourced 340,000
company

1. Using the fair value model, how much is the profit/loss related to investment property?
a. 3,760,000
2. Using the cost model, how much is the profit or loss from investment property?
a. 1,960,000