Problem 1
Vanessa Company reported the following data at year-end
Franchise 1,000,000
Computer software 1,500,000
Deffered charges 100,000
Patent 2,500,000
Customer list purchased 500,000
Copyright 700,000
Deposit with advertising agency to promote goodwill 400,000
Bond sinking fund 1,300,000
Excess of cost over fair value of identifiable net
assets of acquired subsidiary 4,000,000
Trademark 900,000
Research and development cost 2,000,000
What total amount should be reported as intangible assests?
Problem 2 (AICPA Adapted)
Tobin Company incurred P1,600,000 of research and development costs to
develop a product for which a patent was granted at the beginning of
current year.
Legal fees and other costs associated with registration of the patent totalled
P300,000. At year- end, the entity paid P450,000 for legal fees in a
successful defense of the patent.
What is the total amount that should be capitalized for the patent at year-end?
Problem 3
Harmonious Company acquired a patent for a drug with remaining
legal life and useful life of six years on January 1, 2015 for P5,400,000.
On January 1, 2017, a new patent is received for an improved version of
the same drug. The new patent has a legal and useful life of twenty years.
What is the amortization expense for 2017?
Problem 4 (AICPA Adapted)
On January 1, 2014, Taft Company purchased a patent for
P7,140,000. The patent is being amortized over the remaining legal
life of 15 years expiring on January 1, 2029.
During 2017, the entity determined that the economic benefits of the
patent would not last longer than ten years from the date of acquisition.
What is the carrying amount of patent on December 31, 2017?
Problem 5 (AICPA Adapted)
At the beginning of current year, Borocay Company a trademark from
Lamitan Company for P3,000,000. The entity retained an independent
consultant who estimated the trademark's life to be indefinite. The
carrying amoung of the trademark was P1,500,000 on the books of
Lamitan Company.
What is the carrying amount of the trademark at year-end in the book
of Boracay Company?
Seatwork
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 1,800,000
Research salaries and fringe benefits for engineers and scientists 200,000
Cost of testing prototype 250,000
Legal cost for filing of patent 150,000
Fees paid to government patent office 50,000
Drawings required by patent office to be filed with patent application 40,000
1. What amount should be capitalized as cost of patent?
2. What amount of research and development cost should be expensed
in current year?
Seatwork
Royal Company purchased a trademark and incurred the following costs:
Purchase price 1,000,000
Nonrefundable value added tax 50,000
Training of personnel on the use of new trademark 70,000
Research expenditures associated with purchase of the
new trademark 240,000
Legal cost incurred to register the new trademark 105,000
Administrative salares 120,000
What is the initial cost of the trademark?
Solution 1
Franchise 1,000,000
Computer software 1,500,000
Patent 2,500,000
Customer list purchased 500,000
Copyright 700,000
Excess of cost over fair value of identifiable net
assets of acquired subsidiary 4,000,000
Trademark 900,000
11,100,000
Solution 2
Legal fees and other costs associated with registration 300,000
The cost of litigation, whether successful or not, should be treated as
outright expense because such cost would only maintain and not
enhance the originally assessed future benefits.
Solution 3
Cost - January 1, 2015 5,400,000
Amortization for 2015 and 2016 (5,400,000/6 * 2) -1,800,000
Carry Amount - January 1, 2017 3,600,000
Amortization for 2017 (3,600,000/20) 180,000
Solution 4
Cost - January 1, 2014 7,140,000
Amortization for 2014, 2015, 2016
(7,140,000/ 15 * 3) -1,428,000
Carrying Amount - January 1, 2017 5,712,000
Amortization for 2017 (5,712,000/7) -816,000
Carrying Amount - December 31, 2017 4,896,000
Solution 5
The legal life of trademark is 10 years may be renewed
every 10 years.
Considering the almost automatic renewal of a trademark,
the trademark can be clasified as an intangible asset with
indefinite life.
Accordingly, the cost of trademark is not amortized but tested
for impairment at least annually.
Solution in Seatwork
Legal cost for filing of patent 150,000
Fees paid to government patent office 50,000
Drawings required by patent office to be filed with patent application 40,000
Total cost of patent 240,000
Purchase of special equipment to be used solely for development of the
new machine 1,800,000
Research salaries and fringe benefits for engineers and scientists 200,000
Cost of testing prototype 250,000
Research and development cost 2,250,000
Solution in Seatwork
Purchase price 1,000,000
Nonrefundable value added tax 50,000
Legal cost incurred to register the new trademark 105,000
Total cost of trademank 1,155,000