Assignment 01 Audit of Intangible Assets PDF

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ASSIGNMENT 01 :AUDIT OF INTANGIBLE ASSETSProblem 1: Transactions during 2015 of the newly organized Paper Corporation included the following:Jan. 2 Paid legal fees of P150,000 and stock certificate costs of P83,000 to complete organization of the corporation.15 Hired a clown to stand in front of the...

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ASSIGNMENT 01 :AUDIT OF INTANGIBLE ASSETS Problem 1: Transactions during 2015 of the newly organized Paper Corporation included the following: Jan. 2

Paid legal fees of P150,000 and stock certificate costs of P83,000 to complete organization of the corporation.

15

Hired a clown to stand in front of the corporate office for 2 weeks and hound out pamphlets and candy to create goodwill for the new enterprise. Clown cost, P10,000; pamphlets and candy, P5,000.

Apr. 1

Patented a newly developed process with costs as follows: Legal fees to obtain patent Patent application and licensing fees Total

P 429,000 63,500 P 492,500

It is estimated that in 6 years other companies will have developed improved processes, making the Paper Corporation process obsolete. May

1

Acquired both a license to use a special type of container and a distinctive trademark to be printed on the container in exchange for 6,000 shares of Paper’s no-par common stock selling for P50 per share. The license is worth twice as much as the trademark, both of which may be used for 6 years.

July

1

Constructed a shed for P1,310,000 to house prototypes of experimental models to be developed in future research projects.

Dec. 31

Incurred salaries for an engineer and chemist involved in product development totaling P1,750,000 in 2015.

Required: Based on the above and the result of your audit, determine the following: 1.

Cost of patent

2.

Cost of licenses

3.

Cost of trademark

4. 5.

Carrying amount of Intangible Assets Total amount resulting from the foregoing transactions that should be expensed when incurred

ANSWERS: Number 1 2 3 4 5

Answers P 492,500 P 200,000 P 100,000 P 697,604 P 1,998,000

Problem 2: On December 31, 2014, Solver Corporation acquired the following three intangible assets: 1. A trademark for P300,000. The trademark has 7 years remaining legal life. It is anticipated that the trademark will be renewed in the future, indefinitely, without problem. 2. A customer list for P220,000. By contract, Solver 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, 2015, before any adjusting entries for the year were made, the following information was assembled about each of the intangible assets: a) Because of a decline in the economy, the trademark is now expected to generate cash flows of just P10,000 per year. The useful life of trademark still extends beyond the foreseeable horizon. b) The cash flows expected to be generated by the customer list are P120,000 in 2016 and P80,000 in 2017.

Required: Based on the above and the result of your audit, determine the following: (Assume that the appropriate discount rate for all items is 6%): 1.

Total amortization for the year 2015

2. Impairment loss for the year 2015 3. Carrying value of Trademark as of December 31, 2015 4. Carrying value of Customer list as of December 31, 2015

5. In auditing intangible assets, an auditor most likely would review or re-compute amortization and determine whether the amortization period is reasonable in support of management’s financial statement assertion of a. Valuation. C. Completeness. b. Existence or occurrence. D. Rights and obligations.

Number 1 2 3 4 5

Answers P 73,333 P 133,333 P 166,667 P 146,667 A...