Intangible Assets Sample Problems PDF

Preview

Summary

SAMPLE PROBLEMS: INTANGIBLE ASSETSProblem 1 Transactions during the current year of the newly organized Lovely Company included the following: · Paid legal fees of P60, 000 and stock certificate costs of P20, 000 to complete organization of the corporation. · Hired a clown to stand in front of the c...

Description

SAMPLE PROBLEMS: INTANGIBLE ASSETS Problem 1 Transactions during the current year of the newly organized Lovely Company included the following: · Paid legal fees of P60, 000 and stock certificate costs of P20, 000 to complete organization of the corporation. · Hired a clown to stand in front of the corporate office for two weeks and hand out pamphlets and candy, P15, 450. · Patented a newly developed process with cost as follows: Legal fees to obtain patent 550,000 Patent application and licensing fees 65,000. It is estimated that in five years other companies will have developed improved similar process, making the patent process obsolete. · 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 ordinary shares of Lovely Company selling for P50 per share. The license is worth twice as much as the trademark, both if which may be used for four years. · Constructed a shed for P355, 000 to house prototypes or experimental models to be developed in future research projects. · Incurred salaries for an engineer and a chemist involved in product development totaling P200, 400 in the current year. How much should be recognized as total initial cost of all intangible assets? Legal fees to obtain patent Patent application and licensing fees Trademark (6,000 x P50 x 1/3) License (300,000 x 2/3) Total Cost of Intangible Assets

550,000 65,000 100,000 200,000 915,000

Problem 2 Tobin Company incurred P1, 700,000 of research and development cost to develop a product for which a patent was granted on January 1, 2018. Legal fees and other costs associated with registration of the patent totaled P380, 000. On March 31, 2018, Tobin paid P440, 500 for legal fees in a successful defense of the patent. What is the total amount that should be capitalized for the patent through March 31, 2018? Legal fees and other costs 380,000

Problem 3 Queen Company developed a new machine that reduces the time required to insert the fortunes into its fortune cookies. Because the process is considered very valuable to the fortune cookie industry, Queen Company patented the machine. The following expenses were incurred in developing and patenting the machine:

Research and development laboratory expense Metal used in the construction of the machine Blueprint used to design the machine Legal expenses to obtain patent Wages paid for the employees’ work on the research and Development, and building of the machine (60% of the time Was spent in actually building the machine) Expense of drawing required by the patent office to be Submitted with the patent application Fee paid to government patent office to process application

560,000 165,000 68,000 320,000

800,000 35,000 57,000

At year-end, Queen Company paid P390, 000 in legal fees to successfully defend the patent against an infringement suit by another entity. How much of the expenditures should be capitalized as cost of patent? Legal expenses to obtain patent Expense of drawing required by the patent office to be submitted with the patent application Fee paid to government patent office to process application Total capitalizable cost of patent

320,000 35,000 57,000 412,000

Problem 4 Golden Company developed a new machine for manufacturing baseballs. Because the machine is considered very valuable, the entity had it patented. The following expenditures were incurred in developing and patenting the machine: Purchase of special equipment to be used solely for Development of the new machine Research salaries and fringe benefits for engineers and scientists prototype 200,000 Legal cost for filing of patent Fees paid to government patent office Drawings required by patent office to be filed with patent Application a. How much should be capitalized as cost of patent? Legal cost for filing of patent 6,000 Fees paid to patent office 40,000 Drawings required by patent office 50,000

1,700,000 300,000 Cost of testing 6,000 40,000 50,000

Total cost of patent

b.

96,000

How much research and development cost should be expensed in the current year?

Purchase of special equipment Research salaries and fringe benefits Cost of testing prototype Research and development Expense

1,700,000 300,000 200,000 2,200,000

Problem 5 Iceberg Company purchased a patent on January 1, 2013 for P8, 000,000. The original useful life was estimated to be 15 years. However, in December 2018, Iceberg’s controller received information proving conclusively that the product protected by the Iceberg patent would be obsolete within four years. Accordingly, the entity decided to write off the unamortized portion of the patent cost over five years beginning in 2018. What is the patent amortization for 2018? Cost- January 1, 2013 Accumulated amortization (8,000,000/15 x 5) Dec. 31,2017 Carrying amount - January 1, 2018 Amortization for or 2010 (5,333,333/5)

8,000,000 (2,666,667) 5,333,333 1,066,667

Problem 6 On January 1, 2015, Taft Company purchased a patent for P9, 150,000. The patent is being amortized over its remaining legal life of 15 years expiring on January 1, 2030. During 2018, Taft determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition. What should be reported in the statement of financial position as carrying amount of patent on December 31, 2018? Cost - January 1, 2015 Amortization for 3 periods (9,150,000/15 x 3) Carrying amount - December 31, 2017 Amortization for 2018 (7,320,000/7) Carrying amount - December 31, 2018

9,150,000 (1,830,000) 7,320,000 (1,045,714) 6,274,286

Problem 7 On January 1, 2015, Lava Company purchased a patent for a new consumer product for P980, 000. At the time of purchase, the patent was valid for 15 years. However, the patent’s useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2018, the product was permanently withdrawn from sale under governmental order because of potential health hazard in the product.

What amount should lava charge against income during 2018 if amortization is recorded at the end of each year? Acquisition cost Amortization for 2015,2016,2017 (980,000/10 x 3) Carrying amount for 2018

980,000 (294,000) 686,000

Problem 8 Zamboanga Company acquired three patents in January 2018. The patents have different lives as indicated in the following schedule:

Patent X Patent Y Patent Z

Cost 1,500,000 2,450,000 3,780,000

Remaining useful life 10 5 6

remaining legal life 8 10 15

Patent Z is believed to be uniquely useful as long as the entity retains the right to use it. In June 2018, the entity successfully defended its right to Patent Y. Legal fees of P430,000 were incurred in this action. The entity’s policy is to amortize intangible assets by the straight line method to the nearest half year. The entity reports on a calendar-year basis. What amount of amortization should be recognized for 2018? Patent X (1,500,000/8) Patent Y (2,450,000/5) Patent Z (3,780,000/6) Total amortization

187,500 490,000 630,000 1,307,500

Problem 9 Gray Company was granted a patent on January 1, 2015, and appropriately capitalized P550, 000 of related costs. Gray was amortizing the patent over its estimated life of 15 years. During 2018, Gray paid P250, 000 in legal costs in successfully defending an attempted infringement of the patent. After the legal action was completed, Gray sold the patent to the plaintiff for P850, 000. Gray’s policy is to take no amortization in the year of disposal. In its 2018 income statement, what amount should Gray report as gain from sale of patent? Acquisition cost, January 1, 2015 Amortization for 2015, 2016, 2017 (550,000/15x 3) Carrying amount - January 1, 2018

550,000 (110,000) 440,000

Sales price Remaining cost of patent Gain from sale of patent

850,000 (440,000) 410,000

Problem 10

Romblon Company purchased another entity for P8, 700,000 each. A schedule of the fair value of entity’s assets and liabilities as of the purchase date follows: Cash 60,000 Accounts receivable 850,000 Inventory 1,300,000 PPE 4,100,000 6,310,000 Current liabilities Note payable – bank (long term) Net assets at fair value

850,000 1,360,000

2,210,000 4,100,000

What is the goodwill arising from the acquisition? Acquisition cost Net assets at Fair Value Goodwill

8,700,000 (4,100,000) 4,600,000...