Quizzer - IA - AUDITING PROBLEMS IN INTANGIBLE ASSET PDF

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APPLIED AUDITINGINTANGIBLE ASSETSPROBLEM 5Transactions during the 2018 of the newly organized EEEE 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 corpo...

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APPLIED AUDITING INTANGIBLE ASSETS PROBLEM 5 Transactions during the 2018 of the newly organized EEEE 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 hand out pamphlets and candy to create goodwill for the new enterprise. Clown cost, P10,000; pamphlets and candy, P5,000.

April

1

Patented a newly developed process with costs as follows: Legal fees to obtain patent P 429,000 Patent application and licensing fees 63,500 Total P 492,500 ======== It is estimated that in 6 years other companies will have developed improved processes, making the EEEE 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 EEEE’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 2008.

QUESTIONS: Based on the above and the result of your audit, determine the following: 1. 2. 3. 4. 5.

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

PROBLEM 6 The FFFF Company acquired several small companies at the end of 2017 and, based on the acquisitions, reported the following intangibles in its December 31, 2017 balance sheet: Patent P 200,000 Copyright 400,000 Tradename 350,000 Computer software 100,000 Goodwill 900,000 The company’s accountant determines that patent has an expected life of 10 years and no expected residual value, and that it will generate approximately equal benefits each year. The company expects to use the copyright and tradename for the foreseeable future. The accountant knows that the computer software is used in the company’s 120 sales offices. The company has replaced the software in 60 offices in 2018, and expects to replace the software in 40 more offices in 2019 and the remainder in 2020. On December 31, 2018, there are no indications for impairment of patent and computer software. The following information relates to the other intangible assets. a. Because of the rampant piracy, the copyright is expected to generate cash flows of just P8,000 per year. b. The tradename is expected to generate cash flows of P15,000 per year. c. The goodwill is associated with FFFF’S Manufacturing reporting unit. The cash flows expected to be generated by the FFFF Manufacturing reporting unit is P200,000 per year for the next 25 years. The reporting unit has a carrying amount of P3,000,000. QUESTIONS: Based on the above and the result of your audit, determine the following: (Assume that the appropriate discount rate for all items is 5%). 1. 2. 3. 4.

Total amortization of intangible assets in 2018 Total loss on impairment in 2018 Carrying amount of goodwill on December 31, 2018 Carrying amount of other intangible assets on December 31, 2018...