Problem NO.

JOYCE CORP. holds a valuable patent on a precipitator that prevents certain types of air
pollution. JOYCE does not manufacture or sell the products and processes it develops. Instead,
it conducts research and develops products and processes which it patents and then assigns
the patents to manufacturers on a royalty basis. Occasionally, it sells a patent. The following
present the summary of the activities in relation to the aforementioned patent:

1996-1997 Research conducted to develop precipitator: P3,840,000

Jan. 5, 1998 Design and construction of prototype 876,000

March 15 Testing the prototype models 420,000

Jan 2, 1999 Legal and other professional fees to process

the patent application (useful life = legal life) 620,000

Dec 10, 2001 Legal fees paid to successfully defend the device patent 357,000

Jan. 3, 2003 Acquisition of a competitive patent aimed

at protecting old patent 406,000

Jan. 5, 2004 Acquisition of the related patent which extended

the life of the patents for additional 2 years 654,375

Dec.31, 2006 Legal fees paid in unsuccessful patent infringement

suit against a competitor 250,000

1. What is the correct cost of the patent upon initial recognition?

2. What is the carrying value of the patent on December 31, 1999?

3. What is the carrying value of the patent on December 31, 2003?

4. What is the carrying value of the patent on December 31, 2005?

5. What is the total loss from patent write off should be recognized in 2006?
Problem NO. 2

Jimar Co. incurred the following costs during the year:

Cost of activities aimed at obtaining new knowledge P700,000

Marketing research to study consumer tastes 16,000

Cost of developing and producing a prototype model 23,000

Cost of testing the prototype model for safety and

environmental friendliness 80,000

Cost of revising designs for flaws in the prototype model 15,000

Salaries of employees, consultants, and technicians involved in R&D 120,000

Amount paid for conference for the introduction of the newly developed

product including fee of a model hired as endorser 102,000

Advertising to establish recognition of the newly developed product 43,000

Cost incurred on search for alternatives for material, devices,

products, processes, systems or services 30,000

Cost of final selection of possible alternatives for a new process 96,000

Periodic or routine design changes to existing products 2,500

Modification of design for a specific customer 10,000

Cost of design, construction and operation of a pilot plant that is not

Of a scale economically feasible for commercial production 5,000

Cost of routine, seasonal, and periodic design of tools, jigs, molds and dies 18,000
Cost of quality control during commercial production 32,000

Cost of building acquired to be used in various R&D projects 1,000,000

Depreciation on the building described above 100,000

Personnel costs of persons involved in research and development projects 41,200

Design, construction, and testing of production prototypes and models 96,000

1. Compute for the total research and development expense during the year.
Problem NO. 3

You gathered the following information related to the Patents account of the Lady Han
Cookie Corporation in connection with your audit of the company’s financial statements for the
year 2006.
In 2005, Lady Han 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, Lady Han patented the machine. The following expenses were incurred in
developing and patenting the machine:

Research and laboratory expenses P1000,000

Metal used in the construction of the machine 320,000
Blueprints used to design the machine 128,000
Legal expenses to obtain patent 128,000
Wages paid for the employees’ work on the research, 1,200,000
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 68,000
submitted with the patent application
Fees paid to the government patent office to process 100,000
application

During 2006, Lady Han paid P150,000 in legal fees to successfully defend the patentagainst an
infringement suit by Cookie Monster Corporation.

It is the company’s policy to take full year amortization in the year of acquisition

QUESTIONS:
Based on the above and the result, determine the following:

1. Cost

2. Cost of Machine

3. Amount that should charged to expense when incurred in connection with the
development of the patented machine

4. Carrying amount of patent as of December 31,2006

Problem NO. 4

Transactions during 2005 of the newly organized Pink 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 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 Pink 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 Pink 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, determine the following:

1. Cost of patent

2. Cost of licenses

3. Cost of trademark

4. Carrying amount of Intangible Assets

5. Total amount resulting from the foregoing transactions that should be expensed when
incurred.
PROBLEM NO. 6

The Terran Company Acquired several small companies at the end of 2008 and, based on the
acquisitions, reported the following intangibles in its December 31, 2008 statement of financial
position:

Patent 200,000
Copyright 400,000
Tradename 350,000
Computer software 100,000
Goodwill 900,000

The company’s accountant determines the 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 will be used in 120 offices: 60 offices in 2009, and
expects to replace the software in 40 more offices in 2010 and the remainder in 2011.

On December 31, 2009, there are no indications of impairment of patent and computer
software. The following information relates to the other intangibles:

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 Terran’s SCV Manufacturing reporting unit. The cash
flows expected to be generated by the SCV Manufacturing reporting unit is P200,000
per year for the next 25 years. The reporting unit has a carrying amount of
P3000,000.

QUESTIONS:

Based on the above data, compute the following:

1. Total amortization of Intangible assets in 2009?

2. Total impairment loss in 2009?

3. Carrying amount of goodwill on December 31, 2009?

4. Carrying amount of other intangibles assets on December 31, 2009?

PROBLEM NO.7

On December 31, 2004, Silver Corporation acquired the following three intangible assets:

 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.

 Goodwill for P1,500,000. The goodwill is associated with Silver s Hayo Manufacturing
reporting unit.

 A customer list for P220,000. By contract, Silver 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, 2005, 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 Hayo Manufacturing reporting unit is
P250,000 per year for the next 22 years. Book values and fair values of the assets and
liabilities of the Hayo Manufacturing reporting unit are as follows:

Book values Fair values

Identifiable assets P2,700,000 P3,000,000

Goodwill 1,500,000 ?

Liabilities 1,800,000 1,800,000

c) The cash flows expected to be generated by the customer list are P120,000 in 2006 and
P80,000 in 2007.

REQUIRED:

Based on the above and the result, determine the following: (Assume that the appropriate discount
rate for all items is 6%):

1. Total amortization for the year 2005

2. Impairment loss for the year 2005

3. Carrying value of Trademark as of December 31, 2005

4. Carrying value of Goodwill as of December 31, 2005

5. Carrying value of Customer list as of December 31, 2005

PROBLEM NO.8

On January 1, 2016, Onin Co. decided to sell a machinery with a cost of 1200,000 and
accumulated depreciation of 480,000. Depreciation of P10,000 per month has been provided by
the company since it was acquired. The machinery will continue to be operated until sold. The
company undertook all the necessary actions to be able to classify the asset as held for sale.
On the same date, The fair value of asset amounted to 620,000 while the costs to sell total
P20,000.

On February 28, 2016, the plant had not been sold but there has been objective evidence that
the fair value went up to P810,000.

On July, 1, 2016, Onin Co. sold the machinery for P8,00,000 after incurring selling costs of
P50,000.

QUESTIONS:

Based on the above data, compute the following:

1. How much is the impairment loss to be recognized on January 1, 2016?

2. How much is the depreciation expense in 2016?

3. How much is the gain to be recognized in profit or loss in 2016 as a result of increase in
the fair value of the asset?

4.How much is the net gain (or loss) on sale of the asset in 2016?

5. Carrying amount of other intangibles assets on December 31, 2016?