4-1. On January 2, 2019, Amsterdam Enterprises,
At the beginning of 2014, the
developed a new machine for manufacturing
baseballs. Because the machine is considered very
valuable, the company had it patented. The following
expenditures were incurred in developing and
patenting the machine in 2019:
Purchase of special equipment P460,000
(Cost was P600,000)recoverable
amount after development of
new machine is
Research salaries and fringe 51,300
benefits for engineers and
scientists
Cost of testing prototype 70,800
Fees paid to Philippines patent 7,500
office
Drawings required by the patent 14,300
office to be filed with patent
application
Legal costs of filing for patent 38,100
Amsterdam elected to amortized patent over 10
years. Full year amortization is taken up in the year
of acquisition. At January 2 2021, Amsterdam paid
72,000 to successfully defend the patent in an
infringement suit.
On January 3, 2022, Amsterdam determined that the
remaining estimated useful life of the patent was
five years
REQUIRED:
a) Compute the amount charged to Research &
Development Expense based on the
foregoing data.
b) What is the patent carrying value at
December 31, 2020?
c) What is the amortization expense for the
potent for the year ended December 31, 2021?
d) What is the carrying value of the patent at
December 31,2022?
4-2. May Company reported intangible asset
account balances on December 31,2018 as follows?
Patents P192,000
Less accumulated amortization 36,000
Carrying amount P156,000
Transaction intangible 2019 and other information
relating to May May Company's assets included the
following:
The patent was purchased from Gray Company on
January 2, 2016 at which date the remaining legal
was the 16 years. During 2019, May Company
determined that the remaining useful life of the
patent was only eight years including the current
year.
On January 3, 2019, the company unquired both a
license to use a special type of container and a
distinctive trademark to be printed on the container
in exchange for 600 shares of May Company no-par
ordinary which are selling at P100 per share. The
license is worth twice as much as the trademark,
both of which may be used for four years. The
ordinary share has a par value of P80 per share.
On January 3, 2019, May Company acquired all the
non- cash assets and assumed all liabilities of
Brown Company at a cash price of P12 million. May
Company determined that the fair value of the of the
net assets acquired in the transaction is P9,000,000.
REQUIRED:
a) Prepare a summary list of May Company's
intangible asset showing cost and
accumulated amortization as of December
31,2019.
4-3.On January 3,2012, the July Company spent
P196,000 to apply for and obtain a patent on a newly
developed product. The patent had an estimated
useful life of 10 years.
company spent P28,000 in successfully presecuting
an attempted infringement of the patent.
At the beginning of 2017, the company purchased
for P60,000 patent that was expected to prolong the
life of its original patent by 5 years: On July 1, 2020,
a competitor obtained rights to a patent that made
the company's patent obsolete.
REQUIRED:
a) Prepare journal entries to record the
transactions relative to the patents from
January 3, 2012 to July 1, 2020, inclusive.
4-4. ToGo Company previously purchased for
P4,000,000 a trademark of a very successful coffee
drink it markets under the name of Cob ormi. The
trademark was determined to have indefinite life A
competitor recently introduced a product that is in
direct competition with the Cofiti-ormi product, thus,
suggesting the need for an impairment assessment.
Data gathered by ToGo suggests that the useful life
of the trademark is still indefinite, but the net cash
flows generated by the trademark have been
reduced either to P150,000 annually, with a
probability of 80%, or to P300,000), with a probability
of 20% The appropriate risk free interest rate is 6 %.
The appropriate risk-adjusted interest rate is 10%.
REQUIRED :
a) Determine the amount of impairment loss, if
any, on the trademark
4-5. Boston Company acquired a patent right on July
1, 2017 for P500,000. The asset has a legal life of 15
years but due to the rapidly changing technology,
management estimates a useful life only five years
On December 31, 2018, management is uncertain
that the process can actually be made economically
feasible, and decides to write down the patent to its
recoverable amount of P150,000. Amortization will
be taken over 3 years from that time.
On January 1, 2020, after having perfected the
related production process, the asset is now
appraised at a sound value of P600,000 Furthermore,
the estimated useful life is now believed to have
extended by six more years. The company uses
straight-line method of amortization.
REQUIRED. Determine the following:
a) Amortization expense for the year 2017.
b) Impairment lass recognized in 2018.
c) Patent carrying value at December 31,2019.
d) Revaluation surplus recognised in 2020.
4-6. During 2017, Summer Company spent P500,000
for the rescatch and development of its patent. On
January 1, 2018, the compans paid P120,000 to
apply for and obtain right to the patent. The useful
life of the patent is 10 years.
On January 1, 2019. Summer Company purchased a
new patent for P1,200,000 which is expected to
prolong the life of the original new patent by six
years. On December 31, 2020 a commpetitor
obtained rights to a patent that rendered Summer
Company's patent obsolete.
REQUIRED :
a) Prepare all entries relative to the patent from
2017 through 2020.
4-7. April Company incurred the following costs
during 2019.
Quality control during commercial production,
including routine testing of products
P58,000
Laboratory research aimed at discovery of new
knowledge 68,000
Testing for evaluation of new products 26,000
Modification of the formulation of a plastics product computer software for the year 2019.
24,000
Engineering follow through in an early phase of 4-10. On January 1, 2019, Sun Company signed an
commercial production 15,000 agreement to operate as it franchisee for 10 years
Trouble shooting in connection with breakdown for a franchise fee of P 1,400,000. The franchuse
during commercial production 29,000 fee is payeble as follows :
Searching for application of new research findings
19,000 Down payment (upon signing the agreement)
Cost of equipment acquired that will have alternative P500,000
uses in future research and development projects Balance of P900,000 is payable in three equal annual
over the next 5 years (uses straight-line depreciation) payments of P300,000, beginning January 1,2020.
280,000 The market rate of interest for similar obligation is
REQUIRED: 10%)
a) Compute the total amount that April
b) Company should classify as research and The agreement also is provided for the payment of
development costs for 2019. 5% royalties based on sales. In return for these
royalties the franchisor aggreed to provide
4-8. Autumn Company provided the following marketing and promotional services for Sun
information relating to its intangible assets. Company for the duration of franchise contract.
During 2019, Autumn purchased a franchise from REQUIRED:
Jay Corporation for P6,250,000 cash. In addition, the a) What is the cost of the franchise acquired on
franchise contract provides that Autumn shall pay January 1, 2019.
Jay 50% of the revenue from the franchise. For the b) What the amount of the amortization
year 2019, revenue from the franchise amounted to expense for the franchise for the year ended
P10,000,000. December 31, 2019.
c) Prepare journual entries to record the
Autumn Company estimates that the useful life of acquisition and the amortization of the
the franchise is 10 years. franchise in the year 2019, and the first
annual installment of the franchise fee on
On January 1, 2018. Autumn Company e patents a January 1,2020.
from Silver Company for 1750.000 The patent's
carrying value in the books of Silver Company was 4-11. The following data appear in the books of KC
P1,200,000. Th estimated useful life of the patent is Company at Janury 1,2019.
10 years. Current Assets
Trade receivables (net)P1,200,000
On January 1, 2019, Autumn estimates that the Inventoy 1,800,000 P3,000,000
remaining useful life of the patent is only 5 years Proerty, plant and
This revision estimate was made due to significant equipment (net) 4,600,000
changes in technology affecting the patent rights. Total Assets 7,600,000
Towards the middle of the year 2019, Autumn Current Liabilities P 760,000
Company incurred research and development Non-current Liabilities 1,600,000 2,360,000
experises as follows: Equity P5,240,000
Materials and equipment (includes equipment On this date, Winter Company purchased all of the
costing P1,000,000 that can be used in other assets and assumed all of the liabilities of KC
research projects of Autumn Estimated life of this Company for P 7,000,000.
equipment is five years) On January 1. 2019, the fair values of KC Company's
1,200,000 asset were as follows:
Salaries of laboratory personnel 1,400,000 Trade receivables (net), P1,000,000
Indirect costs 600,000 Inventory P1,700, 000
It is the company's policy is to take one-half year Property, plant and equipment (net), P5,900,000
depreciatin and amortization in the year of The fair values of the liabilities are deemed equal to
acquisition and one half year depreciation and their carrying amounts.
amortization in the year of disposal. REQUIRED:
REQUIRED: a) Compute the amount of goodwill included in
a) Prepare all journal entries for the year 2019 in the purchase price paid by Winter Company.
the books of Autumn. b) Prepare the journal entry to record the
4-9. Global Computer Corporation is a newly acquisition of KC Company by January
established compan software company. During 1,2019.
2018, the company incurred and paid the following 4-12. Bagong Silangan Company currently performs
costs relating to a new software pakage, which it an annual test of the impairment of goodwill relating
expects to market in 2019. to its textile division, considered cash-generating
Cost of planning, designing atul testing during the unit. At December 31, 2019, Goodwill has a ledger
research and development phase P 500,000 balance of P400,000. The ledger balances of the
Coding costs to establish technological feasibility productive assets in this cash-generating unit are as
300,000 follows at December 31, 2019:
Coding and testing costs after establishment of Land P5,000,000
technological feasibility 100,000 Building, net of accumulated
Production of product masters 400,000 depreciation o P3,400,000 6,200,000
Patents 1,000,000
Global expects a total revenue of P5,000,000 over Trademarks 800,000
the four-year the of the product. The company began
marketing the product in 2019. During the year, REQUIRED:
revenues amounted to P1,000,000. Give the entry to record impairment, if any, assuming
REQUIRED : that the recoverable amount of the cash generating
a) Journal entries for the costs incurred in unit is
2019. a) P13,100,000
b) Journal entry to record the amortization of b) P12,400,000