2016 Vol 1 Ch 6 Answers - Fin Acc SolMan

Chapter 6 - Intangible Assets

CHAPTER 6 INTANGIBLE ASSETS Discussion Question No. 21 a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. r. 6-1.

6-2.

Expense, cost of internally developed publishing title is not allowed to be capitalized. Intangible Expense Intangible Intangible Prepaid expense With alternative use, PPE; otherwise, unrecoverable cost, R and D expense Charged to RE Expense Intangible Intangible Expense Expense, copyright shall be written off in profit or loss Expense Expense PPE Expense Expense PROBLEMS

(Amsterdam Enterprises, Inc.) (a)

Special equipment (600,000 – 460,000) Research salaries Costs of testing prototype R & D Expense

P140,000 51,300 70,800 P262,100

(b)

Fees paid to Phil. Patent Office Drawings required by the patent office Legal costs of filing patent Patent cost, January 1, 2016 Less amortization of patent for years 2016 and 2017 (59,700/ 10) x 2 yrs. Patent carrying value, December 31, 2017

P

(c)

Patent carrying value at December 31, 2018 (59,700 x 7/10) Remaining estimated useful life at January 1, 2019 Amortization expense for year 2019

P 41,790 ÷ 5 P 8,358

(d)

Carrying value, January 1, 2019 Less amortization expense for 2019 Carrying value, December 31, 2019

P41,790 8,358 P33,432

7,500 14,100 38,100 P 59,700 11,940 P 47,760

(May Company) Patents Cost P192,000 Less accumulated amortization 36,000+(156,000/8) 55,500 License Cost (100 x 600 x 2/3) P 40,000 Less accumulated amortization (40,000/4) 10,000 Trademark Cost (100 x 600 x 1/3) P 20,000 Less accumulated amortization (20,000/4) 5,000 Goodwill (12M – 9M) Total intangible assets

63

P 136,500 30,000 15,000 3,000,000 P3,181,500

Chapter 6 - Intangible Assets

6-3.

(July, Inc.) 2009

Jan. 3

Patents Cash

196,000 196,000

2009-2010

Dec. 31

Amortization Expense – Patents (196,000/10) Accumulated Amortization-Patents

19,600

Legal Fees Cash

28,000

Amortization Expense Accumulated Amortization-Patents

19,600

Patents Cash

60,000

Amortization Expense Accumulated Amortization-Patents 196,000 – (19,600 x 5) = 98,000 (98,000 + 60,000) / 10 = 15,800

15,800

19,600

2011

Jan. 1 2011-2013 Dec. 31

28,000 19,600

2014

Jan. 1 2014-2016 Dec. 31

60,000 15,800

2017

July 1

1

6-4.

Amortization Expense Accumulated Amortization-Patents 15,800 x 6/12 = 7,900

7,900

Loss from Write off of Patents Accumulated Amortization-Patents Patents 196,000 + 60,000 = 256,000 98,000 + (15,800 x 3.5 yrs) = 153,300

102,700 153,300 256,000

(ToGo Company) Carrying value Recoverable value 150,000/10% = 1,500,000 x 80% 300,000/10% = 3,000,000 x 20% Impairment loss

6-5.

7,900

P4,000,000 P1,200,000 600,000

1,800,000 P2,200,000

(Boston Company) (a)

Amortization expense for 2014 (500,000/5) x ½

P 50,000

(b)

Carrying amount, December 31, 2015 (500,000 – 150,000) Estimated recoverable amount Impairment loss at December 31, 2015

P350,000 150,000 P200,000

(c)

Written down value of patent at December 31, 2015 Less amortization for 2016 150,000 / 3 Carrying amount at December 31, 2016

P150,000

Sound value at January 1, 2017 Carrying amount at December 31, 2016 Increase in value Impairment loss Recovery of previous impairment loss through lower amortization (100,000 – 50,000) Revaluation surplus in 2017

P600,000 100,000 P500,000

(d)

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50,000 P100,000

P200,000 50,000

150,000 P350,000

Chapter 6 - Intangible Assets

6-6.

(Summer Company) 2014

R & D Expense Cash

500,000

Patents Cash Amortization Expense Accumulated Amortization-Patents

120,000

500,000

2015

Jan. 1 Dec. 31

120,000 12,000 12,000

2016

Jan. 1

Patents Cash

1,200,000 1,200,000

2016-2017

Dec. 31

Amortization Expense Accumulated Amortization-Patents (120,000-12,000) + 1,200,000 = 1,308,000 1,308,000/15 = 87,200

87,200 87,200

2017

Dec. 31

6-7.

Loss from Write down of Patents Accumulated Amortization Patents

1,320,000

(April Company) Laboratory research Modification of formulation Testing Searching for application Depreciation of equipment (280,000/5) R & D costs for 2016

6-8.

1,133,600 186,400

P 68,000 26,000 24,000 19,000 56,000 P193,000

(Autumn Company) a. 2016 Franchise Cash Dec. 31 31 b. Dec. 31

6,250,000 6,250,000

Franchise Fee Expense (5% x 10,000,000) Cash /Accrued Expenses

500,000

Amortization Expense Accumulated Amortization-Franchise 6,250,000/10 = 625,000; 625,000 x 1/2

312,500

Amortization Expense Accumulated Amortization-Patents 750,000 x 9.5/10 = 712,500; 712,500/5

142,500

500,000 312,500

142,500

c. R & D Expense Equipment Accumulated Depreciation-Equipment Cash

2,300,000 1,000,000 100,000 3,200,000

200,000+1.4M+600,000+100,000=2.3M; (1M.5) x ½=100,000

6-9.

(Global Computer Corporation) (a)

(b)

R & D Expense Software Costs Cash

800,000 500,000

Amortization Expense Accumulated Amortization-Software Costs

125,000

1,300,000

0.5M/4 = 125,000 (higher); 0.5M x 1/5 = 100,000

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125,000

Chapter 6 - Intangible Assets

6-10.

(Sun Company) (a)

Downpayment Present value of future payments 300,000 x 2.4869 Total cost

(b)

Dec. 31 31 2017 Jan. 1

P 124,607

Franchise Discount on Notes Payable Cash Notes Payable Interest Expense Discount on Notes Payable (10% x 746,070) Amortization Expense Accumulated Amortization-Franchise

1,246,070 153,930 500,000 900,000 74,607 74,067 124,607 124,607

Notes Payable Cash

300,000 300,000

(Winter Company) (a)

(b)

6-12.

746,070 P1,246,070

Amortization Expense for 2016 1,246,070 / 10 yrs

(c) 2016 Jan. 1

6-11.

P 500,000

Cash purchase price Fair value of net assets (1,000,000 + 1,700,000 + 5,900,000 – 2.360,000) Goodwill Trade Receivables Inventory Property, Plant and Equipment Goodwill Current Liabilities Noncurrent Liabilities Cash

P7,000,000 6,240,000 P 760,000 1,000,000 1,700,000 5,900,000 760,000 760,000 1,600,000 7,000,000

(Bagong Silangan Company) (a)

Recoverable amount of the CGU Carrying amount of the CGU, including goodwill Impairment loss Impairment Loss Goodwill

(b)

300,000 300,000

Recoverable amount of the CGU Carrying amount of the CGU, including goodwill Impairment loss Credited to goodwill Decrease in value of identifiable noncurrent assets Impairment loss Goodwill Land (5/13 x Accumulated Accumulated Accumulated

P13,100,000 13,400,000 P 300,000

P12,400,000 13,400,000 P 1,000,000 400,000 P 600,000 1,000,000

600,000) depreciation – Building (6.2/13 x 600,000) amortization – Patents (1/13 x 600,000) amortization – Trademarks (.8/13 x 600,000)

66

400,000 230,769 286,154 46,154 36,923

Chapter 6 - Intangible Assets

MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5

D D C B B

MC6 MC7 MC8 MC9 MC10

A C D A D

MC11 MC12 MC13 MC14 MC15

B D B D C

MC16 MC17 MC18 MC19 MC20

B A B D C

Problems MC21

D

Patents Franchise Total cost of intangible assets

P244,000 100,000 P344,000

MC22

C

Initial franchise fee

MC23

C

Trademarks Patents Total intangible assets

P750,000 150,000 P900,000

MC24

B

Initial payment Present value of four annual payments (100,000 x 2.91) Cost of franchise

P200,000 291,000 P491,000

MC25

B

Patent (1,200,000 x 2/50) Copyright (750,000/10 = 75,000; 75,000 x 2/12) Franchise (60,000 x 2/12) Total amortization amount for 2015

P48,000 12,500 10,000 P70,500

MC26

B

Patent A (125,000 ÷ 10 = 12,500; Patent B (272,500 ÷ 5 = 54,500 x ½) Patent C (656,200 ÷ 17) Total patent amortization expense

P12,500 27,250 38,600 P78,350

MC27

C

Amortization expense for 2013 (340,000 ÷ 10 = 34,000 x ½)

P17,000

MC28

C

Cost Accumulated amortization (34,000 x 1.5 years) Carrying value, January 1, 2015

MC29

B

Revised amortization expense for 2016 (289,000 ÷ 5)

MC30

A

There is no capitalized cost of the asset that will be subject to amortization.

P1,000,000

MC31

C

Laboratory research Testing for evaluation of new products Modification of formulation of plastic products Searching for application of new research findings Total research and development expense

MC32

B

Depreciation of equipment Materials used in R & D Compensation cost of personnel in R & D Outside consulting fees for R & D work Indirect costs appropriately allocated to R & D Total research and development expense

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P340,000 51,000 P289,000 P57,800

P0 P68,000 24,000 6,000 19,000 P117,000 P210,000 300,000 400,000 220,000 260,000 P1,390,000

Chapter 6 - Intangible Assets

MC33

C

Patent amortization expense (152,000 ÷ 8)

MC34

A

Loss from patent obsolescence (1,440,000 x 1.5/10)

MC35

A

Cost of Patent A only (40,000 + 5,000)

MC36

C

Patent amortization expense for 2015 (900,000 / 10 years) Loss on obsolescence 900,000 - (90,000 x 4 years) Charge against income during 2015

MC37

C

Accumulated amortization (1,500,000 ÷ 30)

P50,000

MC38

D

Patent amortization for 2011 (480,000 ÷ 10)

P48,000

MC39

A

Carrying amount, beginning of 2012 (480,000 x 5/10) Additional capitalized cost New depletable cost Revised remaining life Patent amortization expense for 2012

P240,000 200,000 P440,000 ÷ 10 years P44,000

MC40

B

New depletable cost (see No. 39) Depletion for 3.5 years (44,000 x 3.5 years) Carrying amount at time of obsolescence /Loss

P440,000 154,000 P286,000

MC41

B

Cost of patent Accumulated amortization (270,000/10 = 27,000; 27,000 x 4) Carrying amount, beginning of 2015 Revised depreciation expense for 2015 (162,000/3) Patent, net of accumulated amortization, December 31, 2015 OR 270,000 x 6/10 x 2/3 = 108,000

P270,000 108,000 P162,000 54,000 P108,000

MC42

C

SL =1/5 = 20% Revenue = 25% Depreciation is the higher rate, 25%; thus carrying amount is

MC43

MC44

MC45

C

C

A

P19,000 P216,000 P45,000 P 90,000 540,000 P630,000

75%

SL rate = ¼ = 25% Revenue = 2.4M/12M = 20% Amortization in 2016: Higher rate is 25%; 25% x 6M

P1,500,000

Cumulative amortization under straight line 2/4 = 50% Cumulative amortization under revenue method 2.4M + 4.2M = 6.6M; 6.6M/12M = 55% Amortization in 2017: 55% x 6M = 3.3M; 3.3M – 1.5M

P1,800,000

SL rate = 1/5 = 20% Revenue = 1,500,000 ÷ 5,000,000 = 30% Higher is 30%; 30% x 2,500,000

P750,000

MC46

C

Purchase price Fair value of net assets (115.0M – 52.5M) Goodwill

P70,000,000 62,500,000 P7,500,000

MC47

B

Goodwill

P1,000,000

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