ACCA106-INTERNEDIATE ACCOUNTING 2

1ST Semester, SY2020-2021 QUIZ N0.5-INTANGIBLES

Multiple Choice. Choose the letter that corresponds to the correct answer. Use CAPITAL letter.
1. Once recognized, intangible assets can be carried at
a. Cost less accumulated amortization
b. Cost less accumulated amortization and impairment losses
c. Revalued amount less accumulated amortization
d. Cost plus a notional increase in fair value since the intangible asset is acquired
2. Which disclosure is not required with respect to intangible assets?
a. Useful lives of the intangible assets
b. Reconciliation of carrying amount at the beginning and the end of the year
c. Contractual commitments for the acquisition of intangible assets
d. Fair value of similar intangible assets used by its competitors;
3. A consideration in determining the useful life of an intangible asset is not the
a. Legal, regulatory or contractual provision
b. Provision for renewal or extension
c. Initial cost
d. Obsolescence
4. Amortization of an intangible asset with a finite useful life shall commence when
a. It is first recognized as an asset.
b. It is probable that it will generate future economic benefits. .
c. It is available for use.
d. The cost can be identified with reasonable certainty.
5. Trade secrets and patents are an example of which general category. of intangible asset?
a. Market-related
b. Customer-related
c. Artistic-related
d. Technology-based
6. The cost of purchasing rights for a product that might otherwise have seriously competed with one of
the purchaser's patented products shall be
a. Charged off in the current period.
b. Amortized over the legal life of the purchased patent
c. Added to factory over and allocated to production of the purchaser's product.
d. Amortized over the remaining useful life of the patent for the product whose market would have
been impaired by competition from the newly patented product.
7. A purchased patent with a remaining legal life of 15 years should be
a. Expensed in the year of acquisition.
b. Amortized over 15 years regardless of the useful life.
c. Amortized over its useful life if less than 15 years.
d. Amortized over 20 years.
8. An entity is performing its annual test of the impairment of goodwill for a cash generating unit. The
entity has determined that the fair value of the unit exceeds the carrying. amount. Which of the following
statements is true concerning the test of impairment?
a. Impairment is not indicated and no additional analysis is necessary.
b. Goodwill should be written down as impaired.
c. The assets and liabilities should be valued to determine if there has been an impairment of goodwill.

d. Goodwill should be retested at the entity level.

9. Which of the following research and development costs should be capitalized and amortized over
current and future periods?
a. Labor and material costs incurred in building a prototype model.
b. Cost of testing equipment that will also be used in another separate research and development
project scheduled to begin next year.
c. Administrative salaries allocated to research and development.

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 d. Research findings purchased from another entity to aid a particular research project currently in
process.
10. At the beginning of the current year, an entity had capitalized cost for a new computer software
product with an economic life of four years. Sales for the current year were ten percent of expected total
sales of the software. The pattern of future sales -cannot be measured reliably. At year-end, the software
had a net realizable value equal to eighty percent of the capitalized cost. The unamortized cost reported
in the year-end statement of financial position should be
a. Net realizable value
b. Ninety percent of net realizable value
c. Seventy five percent of capitalized cost
d. Ninety percent of capitalized cost

MULTIPLE CHOICE- Problems. Please present your solution in addition to the letter of your choice on
each items.
11. X Company purchased Patent A for P600,000 and Patent B for P900,000. X also paid indirect costs of
P75,000 for Patent A and P105,000 for Patent B. Both patents were challenged in legal actions X paid
P300,000 in legal fees in successful defense of Patent A and P450,000 in legal fees in an unsuccessful
defense of Patent B.
What amount should X capitalize for patents?
a. P675,000 c. P1,680,000
b. P975,000 d. P2,430,000

11. Answer: A
Capitalized Expensed
Original cost
Purchase price P600,000 P 900,000
Indirect costs 75,000 165,000
Total 675,000 P 1,005,000
Subsequent cost 750,000
Total costs P675,000 P 1,755,000

12. On January 2 2009 X Company bought a trademark for P500,000. The remaining legal life at the time
of acquisition is 20 years. The company made a reasonable and reliable estimate that this trademark will
provide additional cash flows to the enterprise for an indefinite period. During 2012 X Company's net cash
flows related to the trademark have been on a decreasing trend. As a result of this, the company decided
to evaluate the trademark for possible impairment. On December 31, 2012, reliable estimate showed that
the present value of expected net cash inflows related to the trademark is P240,000.
What amount of impairment loss should the company recognize in 2012
a. None c. P260,000
b. P240,000 d. P500,000
500-240 C
13. X Company has a broadcasting license that expires in 5 years. As of January 1, 2011 the license has
a carrying amount of P2,000,000. The license is renewable and has already been renewed twice in the
past. There are no factors to suggest that the license will not be renewed again and the entity has the
intention to do so. The license is expected to contribute to the entity's cash flow indefinitely.
In the December 31, 2011 statement of financial position, how much should be reported as the
carrying value of the broadcasting license?
a. none c. P1,900,000
b. P1,600,000 d. P2,000,000
14. On January 2, 2011 X Company purchased a franchise with a useful life often years for P100,000. An
additional franchise fee of 3% of franchise operation revenues must be paid each year to the franchisor.
Revenues from franchise operations, amounted to P800,000 during 2011.
In December 31, 2011 statement of financial position, what amount should X report as intangible
asset-franchise?
a. 70,000

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 b. 87,600
c. 90,000
d. 100,000
14. Franchise 100,000
Amort(100k/10yrs x 1 year) ( 10,000)
90,000 (C)
15. On January 1, 2010, X Company leased land and building from an unrelated lessor for a 10-year term
The lease has a renewal option for an additional 10 years, but X has not reached a decision with regard
to the renewal option. In early January of 2011, X completed the following improvements to the property:
Description Estimated Life Cost
Parking lot 6 years P 900,000
Warehouse 15 years 1,620,000
Sales office 10 years 360,000
How much should be the depreciation of leasehold improvements for 2011?
a. P241,000 c. P320,000
b. P288,000 d. P400,000

15. Remaining lease term

(9 yrs) vs. life of the
,improvement,
Cost whichever is shorter Depreciation
Parking lot P 900,000 / 5 = P180,000
Warehouse 1,620,000 / 9 = 180,000
Sales office 360,000 / 9 = 40,000
TOTAL 400,000

16. On January 2, 2010, X Co. purchased Y Co. at a cost that resulted in recognition of goodwill of
P200,000. During the first quarter of 2010, X spent an additional P80,000 on expenditures designed to
maintain goodwill. In its December 31, 2010 balance sheet, what amount should X report as goodwill?
a. P180,000
b. P200,000
c. P252,000
d. P280,000
17. On January 2, 2007, X, Inc. purchased a patent for a new consumer product for P90,000. At the time
of purchase, the patent was valid for fifteen years; however, the patent’s useful life was estimated to be
only ten years due to the competitive nature of the product. On December 31, 2010, the product was
permanently withdrawn from sale under governmental order because of a potential health hazard in the
product. What amount should X charge against income during 2010, assuming amortization is recorded at
the end of each year?
a. P 9,000
b. P54,000
c. P63,000
d. P72,000
90/10 years = 9/yr x 3 years = 27 – 90=63 C
18. X Company purchases a trademark and incurs the following costs in connection with the trademark:
One-time trademark purchase price P100,000
Nonrefundable VAT taxes 5,000
Training sales personnel on the use of the new
trademark 7,000
Research expenditures associated with the purchase of
the new trademark 24,000
Legal costs incurred to register the trademark 10,500
Salaries of the administrative personnel 12,000
Applying PFRS and assuming that the trademark meets all of the applicable initial asset
recognition criteria, the entity should recognize an asset in the amount of
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 a. P100,000
b. P115,500
c. P146,500
d. P158,500

Success at anything will always come down to this: Focus and effort, and we control both.
Dwayne Johnson

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