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CHAPTER 6

INTANGIBLE ASSETS
PROBLEMS
6-1

(Amsterdam Enterprises)
a.
Special equipment
Research salaries
Costs of testing prototype
R & D Expense
b.

c.

Fees paid to Phil. Patent Office


Drawings required by the patent office
Legal costs of filing patent
Patent cost, January 1, 2004
Less amortization of patent for years 2006 and 2007
(59,700/ 17) x 2 yrs.
Patent carrying value, December 31, 2007
Patent carrying value at December 31, 2008
59,700 x 14/17
Remaining estimated useful life at January 1, 2009
Amortization expense for year 2009

P546,000
51,300
70,800
P668,100
P
38,100
P 59,700

7,500
14,100

7,024
P 52,676
P 49,165

5
P 9,833

6-2

(May Company)
Patents
Cost
P192,000
Less accumulated amortization
36,000 + (156,000 8)
55,500
P 136,500
License
Cost (80 x 600 x 2/3)
P 32,000
Less accumulated amortization (32,000/4)
8,000
24,000
Trademark
Cost (80 x 600 x 1/3)
P 16,000
Less accumulated amortization (16,000/4)
4,000
12,000
Goodwill (12M 8M)
4,000,000
Total intangible assets
P4,172,500

6-3

(July, Inc.)
2001

Jan. 3
2001-2004

Dec. 31

Patents
Cash

196,000
196,000

Amortization Expense
Accumulated Amortization-Patents
196,000 / 10

19,600

Legal Fees
Cash

28,000

Amortization Expense
Accumulated Amortization-Patents

19,600

19,600

2005

Jan. 1

28,000

2005

Dec. 31
2006

19,600

Chapter 6 - Intangible Assets


Jan. 1
2006-2008

Dec. 31

Patents
Cash

60,000

Amortization Expense
Accumulated Amortization-Patents

15,800

Amortization Expense
Accumulated Amortization-Patents
15,800 x 6/12 = 7,900

7,900

60,000

15,800

196,000 (19,600 x 5) = 98,000


(98,000 + 60,000) / 10 = 15,800

2009

July 1

Loss from Writedown of Patents


Accumulated Amortization-Patents
Patents

7,900
102,700
153,300
256,000

196,000 + 60,000 = 256,000


98,000 + (15,800 x 3.5 yrs) = 153,300

6-4

(Boston Company)
a.
Patent cost
Estimated useful life
Amortization per year
P100,000
Amortization expense for 2006 (100,000 x 6/12)

P500,000
5 yrs.
P 50,000

b.
Carrying amount, December 31, 2007 (500,000 150,000)
P350,000
Estimated market value
150,000
Impairment loss at December 31, 2007
P200,000
c.
Written down value of patent at December 31, 2007
P150,000
Less depreciation for 2008
150,000 / 3 = 50,000
Carrying amount at December 31, 2008
P100,000
d.
Sound value at January 1, 2009
P600,000
Carrying amount at December 31, 2008
100,000
Increase in value
Recovery of previous impairment loss through lower
amortization = 200,000 / 3
200,000
Revaluation surplus in 2009
6-5

(Summer Company)
2006
R & D Expense
Cash
2007

Jan. 1

50,000

P500,000

P350,000
500,000
500,000

Patents

120,000

43

Chapter 6 - Intangible Assets


Cash
Dec. 31

120,000

Amortization Expense
Accumulated Amortization-Patents

12,000

12,000

2008

Jan. 1

Patents

1,200,00
0

Cash

1,200,00
0

2008-2009

Dec. 31

2009

Dec. 31

Amortization Expense
Accumulated Amortization-Patents
(120,000-12,000) + 1,200,000 =
1,308,000
1,308,000/15 = 87,200
Loss from Writedown of Patents
Accumulated Amortization
Patents

6-6

6-7

(April Company)
Laboratory research
Modification of formulation
Searching for application
Depreciation of equipment (280,000/5)
R & D costs for 2009
(Autumn Company)
a.
2009
Franchise

87,200

1,133,36
0
186,400
1,320,00
0
P 68,000
26,000
19,000

6,250,00
0
6,250,00
0

Dec. 31

Franchise Fee Expense


Cash

500,000

Dec.

Amortization Expense
Accumulated Amortization-Franchise
6,250,000/10 = 625,000; 625,000 x 1/2

312,500

Amortization Expense
Accumulated Amortization-Patents
750,000 x 9.5/10 = 712,500; 712,500 / 5

142,500

b.
2009
Dec. 31
c.
2009

56,000

P169,000

Cash

31

87,200

R & D Expense

500,000
312,500

142,500
2,300,00
0
1,000,00
0

Equipment
Accumulated Depreciation-Equipment
Cash

44

100,000
3,200,00
0

Chapter 6 - Intangible Assets


R&D=200,000+1,400,000+600,000+100,000=
2,300,000
(1,000,000 / 5) x = 100,000

6-8

(KC Company)
a.
Fair value of net assets
(1,000,000 + 1,700,000 + 5,900,000 2.360,000)
Cash purchase price
Goodwill
b.

Trade Receivables
Inventory
Property, Plant and Equipment
Goodwill
Current Liabilities
Noncurrent Liabilities

P6,240,000
7,000,000
P 760,000
1,000,00
0
1,700,00
0
5,900,00
0
760,000

Cash
6-9

(Global Computer Corporation)


a.
R & D Expense
Software
Cash
b.

6-10

800,000
500,000

Amortization Expense
Accumulated Amortization-Software
500,000 x 1.4M/4M = 1,300,000

(Sun Company)
a.
Downpayment
Present value of future payments
200,000 x 2.4869
Total cost
b.

Amortization Expense for 2006


897,380 / 5yrs

c.

760,000
1,600,00
0
7,000,00
0

1,300,00
0

175,000
175,000

P400,000
497,380
P897,380
P179,476

2009

Jan. 1

Dec. 31

31
2010

Jan. 1

Franchise
Discount on Notes Payable
Cash
Notes Payable

897,380
102,620
400,000
600,000

Interest Expense
Discount on Notes Payable
10% x 497,380 = 57,600

49,738

Amortization Expense
Accumulated Amortization-Franchise

179,476

Notes Payable
Cash

200,000

49,738

179,476

200,000

45

Chapter 6 - Intangible Assets

MULTIPLE CHOICE QUESTIONS


Theory
MC1 c

MC6

MC2

MC7

MC3

MC8

MC4

MC9

MC5

MC1
0

Problems
MC21
d
MC22
a
MC23
c
MC24
b
MC25

MC26
MC27
MC28
MC29
MC30
MC31
MC32
MC33
MC34
MC35
MC36
MC37
MC38

b
c
c
b
a
c
c
a
d
c
b
c
b

MC1
1
MC1
2
MC1
3
MC1
4
MC1
5

d
a
d
b
a

MC1
6
MC1
7
MC1
8
MC1
9
MC2
0

b
c
c
d
c

244,000 + 100,000 = 344,000


P0
750,000 + 150,000 = 900,000
1,200,000 x 2/50 = 48,000; (750,000 10) x 2/12 = 12,500
60,000 x 2/12 = 10,000; 48,000 + 12,500 + 10,000 = 70,500
125,000 10 = 12,500; 272,500 5 = 54,500 x = 27,250
656,200 17 = 38,600; 12,500 + 27,250 + 38,600 = 78,350
200,000 + (100,000 x 2.91) = 491,000
340,000 10 = 34,000 x = 17,000
340,000 17,000 34,000 = 289,000
289,000 5 = 57,800
P0
68,000 + 24,000 + 6,000 + 19,000 = 117,000
152,000 8 = 19,000
1,440,000 x 1.5/10 = 216,000
40,000 + 5,000 = 45,000
900,000 x 7/10 = 630,000
210,000 + 300,000 + 400,000 + 220,000 + 260,000 = 2,080,000
1,500,000 30 = 50,000
1,000,000

46

Chapter 6 - Intangible Assets


MC39
MC40
MC41
MC42

d
a
b
b

MC43
MC44

c
d

MC45

480,000 10 = 48,000
(480,000 x 5/10) + 200,000 = 440,000; 440,000 10 = 44,000
440,000 (44,000 x 3.5 yrs) = 286,000
270,000 x 6/10 = 162,000; 162,000 3 = 54,000; 162,000 54,000 =
108,000
1,150,000 525,000 = 625,000; 700,000 625,000 = 75,000
1/5=20%; Depreciation is the higher rate which is 30%; thus carrying amount is
70%

1,500,000 5,000,000 = 30%; 30% x 2,500,000 = 750,000

47