Audit of Intangibles
February 5, 2017 | Author: Tammy Yeban | Category: N/A
Short Description
Huhu...
Description
AUDITING PROBLEMS SY 2014-2015
1505 – 06 AUDIT OF INTANGIBLES
J.M. Tang
PROBLEM NO. 1 The following costs are generally incurred by Kitamoto Corporation, a newly established entity: Pre-opening cost of a business facility Cost incurred in the corporation’s formation and organization Licensing and stand-still agreement A license to manufacture a steroid by means of a government grant Operating and broadcast rights Goodwill purchased in a business combination Internally generated goodwill Purchased recipes and secret formulas Internally developed customer list Training, customer loyalty, and market share Cost of courses taken by management in quality engineering management A television advertisement that will stimulate the sales in technology industry 2 months lease payment in advance Cost of testing in search for a product alternative Operating losses incurred in the start-up of the business Initial franchise fees paid Continuing franchise fees Cost of purchasing a patent from an inventor Legal cost in securing a patent Legal costs incurred in successfully defending a patent Cost of developing brands, mastheads and publishing title Cost of purchasing a trademark Computer software for a computer-controlled machine that cannot operate without that specific software An operating system of a computer Amount paid to a lessor for the exclusive right to rent a facility under an operating lease agreement for a period of 5 years Cost of improvements on a leased facility
600,000 552,000 720,000 360,000 268,800 1,200,000 1,920,000 360,000 289,200 336,000 1,080,000 240,000 720,000 300,000 312,000 420,000 120,000 328,800 168,000 133,200 480,000 600,000 781,200 300,000 240,000 600,000
Required: Based on your audit, how much from the above items can be recognized as intangible assets? a. 3,316,800 b. 4,665,000 c. 4,965,000 d. 6,885,600
PROBLEM NO. 2 Gangster Inc. holds a valuable patent on a precipitator that prevents certain types of air pollution. Ganster 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 the activities in relation to the aforementioned patent: 2003-2004 Jan. 5, 2005 Mar. 15, 2004 Jan. 2, 2006 Dec. 10, 2009 Jan. 3, 2010 Jan. 5, 2011 Dec. 31, 2013
Research aimed at the discovery of the new technology Design and construction of a prototype Testing the prototype models Legal and other professional fees to process the patent application (useful life = legal life) Legal fees paid to successfully defending the device patent Acquisition of a competitive patent aimed at protecting old patent Acquisition of the related patent which extended the life of the patents for additional 2 years legal fees paid in unsuccessful patent infringement suit against a
P3,840,000 876,000 420,000 620,000 357,000 406,000 654,375 250,000
competitor Based on the above and result of your audit, determine the following: 1. What is the correct cost of the patent upon initial recognition? A. 5,756,000 B. 1,916,000 C. 1,040,000
D. 620,000
2. What is the carrying value of the patent on December 31, 2006? A. 589,000 B. 988,000 C. 1,820,200
D. 5,468,200
3. What is the carrying value of the patent on December 31, 2010? A. 1,181,625 B. 845,625 C. 465,000
D. 380,625
4. What is the carrying value of the patent as of December 31, 2012? A. 1,400,000 B. 1,300,000 C. 1,312,500
D. 1,323,529
5. What is the total loss from patent write off that should be recognized in 2013? A. 1,235,294 B. 1,213,333 C. 1,225,000 D. 1,306,667
PROBLEM NO. 3 On December 31, 2012, Invinsible Corporation acquired the following three intangible assets:
A trademark for P450,000. The trademark has 7 years remaining legal life. It is anticipated that the trademark will be renewed in the future, indefinitely, without problem.
Goodwill for P2,250,000. The goodwill is associated with Invinsible’s Lunar Manufacturing reporting unit.
A customer list for P330,000. By contract, Invinsible has exclusive use of the list for 5 years. Because of market conditions, it is expected that the list will have economic value for just 3 years.
On December 31, 2013, before any adjusting entries for the year were made, the following information was assembled about each of the intangible assets:
Because of a decline in the economy, the trademark is now expected to generate cash flows of just P15,000 per year. The useful life of trademark still extends beyond the foreseeable horizon.
The cash flows expected to be generated by the Lunar Manufacturing reporting unit is P375,000 per year for the next 22 years. Book values and fair values of the assets and liabilities of the Lunar Manufacturing reporting unit are as follows:
Identifiable assets Goodwill Liabilities
Book values P4,050,000 2,250,000 2,700,000
Fair values P4,500,000 ? 2,700,000
The cash flows expected to be generated by the customer list are P180,000 in 2014 and P120,000 in 2015.
Assume that the appropriate discount rate for all items is 6%. Round off present value factors to 4 decimal places.
Based on the above and the result of your audit, determine the following: 1. Total amortization for the year 2013 a. P110,000 c. P212,273 b. P174,285 d. P130,285 2. Impairment loss for the year 2013 a. P135,714 c. P200,000 b. P269,376 d. P 0 3. Carrying amount of Trademark as of December 31, 2013 a. P450,000 c. P385,715
b. P250,000
d. P180,624
4. Carrying amount of Goodwill as of December 31, 2013 a. P2,250,000 c. P2,147,727 b. P2,137,500 d. P2,193,750 5. Carrying amount of Customer list as of December 31, 2013 a. P330,000 c. P220,000 b. P264,000 d. P 0
PROBLEM NO. 4 The following costs were incurred by Yehey Corporation during 2013: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.
Searching for applications of new research findings Laboratory research aimed at discovery of new technology Testing for evaluation of new products Design, construction and testing of preproduction prototypes and models Radical modification of the formulation of a glassware production Trouble-shooting in connection with breakdowns during commercial production Adaption of an existing capability to a particular requirement or customer’s need as a part of continuing commercial activity Engineering follow-through in an early phase of commercial production Materials consumed in research and development projects Consulting fees paid to outsiders for research and development projects Personnel costs of persons involved in research and development projects Indirect costs reasonably allocable to research and development projects Quality control during commercial production, including routine testing of products Materials purchased for future research and development projects Research and development costs reimbursable under a contract to perform research and development for Client Corporation Routine and on-going efforts to refine, enrich or otherwise improve upon the qualities of an existing product
91,200 326,400 115,200 1,392,000 124,800 139,200 62,400 72,000 283,200 480,000 614,400 240,000 278,400 163,200 1,680,000 1,200,000 7,262,400
Required: How much should be classified as research and development for the year 2013 a. 3,667,200 b. 3,830,400 c. 3,902,400 d. 5,582,400
NOTE: AUDIT OF PPE PROBLEM NO. 6 Problem 11 Page 208
Brilliant Electronics, Inc
e. Depreciation Expense – Building Accumulated Depreciation – Building 12,000,000 / 20 x 6/12 Investment Property – Land Investment Property – Building Accumulated Depreciation – Building (PPE) (12M/20 x 4.5) Land Building Revaluation Surplus
300,000 300,000
8,000,000 12,000,000 2,700,000 6,500,000 12,000,000 4,200,000
Investment Property – Land Investment Property – Building Fair Value Gain on Investment Property
500,000 400,000 900,000
View more...
Comments