Scribd Logo
Upload

Welcome to Scribd!

  • Ap 8604

    Uploaded by

    Bromanine
    72 views4 pages
    a

    Original Title

    AP 8604

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    a

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    72 views4 pages

    Ap 8604

    Uploaded by

    Bromanine
    a

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 4
    (CPAREVIEW SCHOOL OF THE PHILIPPINES AP-8604 Manila AUDITING PROBLEMS PAReview ‘AUDIT OF INTANGIBLES PROBLEM NO. 1 ‘The following independent situations relate to the aud of Intangible assets. Answer the ‘uestion/s atthe end of each situation. Situation 1 YOLING INDUSTRIES reports the following patents on its December 31, 2018, statement of financial postion Date of Useful fe Ital Cost scquisition Patent A 408,000 March 1, 2015 17 years, PatentB 150,000 July 1, 2016 410 years, Patent 144,000 ‘Sept. 1, 2017 4 years ‘The following events occurred during the year ended December 31, 2019. 1 Research and development costs of P245,700 were incurred during the year. These costs ‘were incurred prior to projects achleving economic vabity. 2. Patent D was purchased on Juty 1 for P285,000. It has 3 remaining ife of 9 ¥ years. 3. A passible impairment of Patent B's value may have occurred at December 31, 2019. This is due to a significant reduction in the demands for certain products protected by Patent B. The ‘company’s controller estimates the following future cash flows from Patent B. December 31,2020 20,000 December 31,2021 20,000 December 31,2022 20,000, “The appropriate discount rate to be use for these cash flows is 8%. 1. What isthe total carying value of Yating’s patents on December 31, 2018? ‘AL P463,540 B. 524,500 C. 702,000 . 794,500 2. What amount of impairment los should be reported by Yoling forthe year ended December 3, 20192 1.45,960, B. P51,540 c. 97,500 . 112,500 3, What's the total carying value of Yoting’s patents on December 34, 20197 ‘A. P 656,360 B. P673,540 . 719,500 1D. 734,500 ‘Situation 2 In your aut ofthe books of DIEHARD CORP. forthe year ended December 31, 2019, you found the following tems in connection with the company's patents account. {) Dichard had spent P120,000 during the year ended December 31, 2018, for research and development costs. This amount was debited to ts patents account. The company’s cost records disclose thatt had spent a total of 141,500 forthe research and development of ts patents, of which P21,500 spent in 2018 had been debited to Research and Development Expense. 'b) The patents were issued on July 1, 2018. In connection with the issuance ofthe patent, the company incurred legal expenses of P1280, which were debited to Legal and Professional Fees Expense, Page’ of Pages SPaRewaya yan to aS ©) On January 5, 2019, Dichard pa a retainer ofP15,000 for legal sevioes in connection with a patent inrngement sult brought against. Deferred Costs was charged forthe amount. 4) In repy to your Inquiry about the company's lables as of December 31, 2019, you received a eter from the company's legal counsel dated January 20, 2020, which indicated that 2 settlement ofthe patent infringement sult had been arranged. The plain wll drop the sut ‘and release the company from al future lables In exchange for P20,000. Additional lawyers fees were incurred amounting to 1,260. 4. The correcting journal enties (excluding amortization) on December 31, 2019, would include ‘et debit (credit) to Patents A (405,720) 36,260, 8. (63,460) 0 c (90720) 21,260 D (84,460) 15,000 PROBLEM NO. 2 ‘The TERRAN COMPANY acquired several small companies atthe end of 2018 and, based on the _acquistions, reported the folowing intangibles in its December 31, 2018, statement of financial poston: Patent 200,000 Copyright 400,000 ‘Tradename 30,000 Computer sofware 100,000 Good 900,000 ‘he company’s accountant determines the patent has an expected life of 10 years and no ‘expected residal value, and that i wl generate approximately equal benefits each year. The ‘campany expects to use the copyright and tradename forthe foreseeable future. The accountant knows that the computer software usec inte compan’ 120 sales offices. The company has replaced the software in 60 offices n 2019, and expects to replace the software in 40 more ofices In 2020 and the remainder In 2021 (On December 31, 2019, there are no indications of impairment of patent and computer sofware. ‘The following information relates tothe other intangible assets. 8) Because of the rampant plracy, the copyright is expected to generate cash flows of just 8,000 per year. b) The tradename is expected to generate cashflows of P15,000 per year. The goodwil is associated with Terran’s SCV Manufacturing reporting unit. ‘The cash lows, ‘expected to be generated by the SCV Manufacturing reporting unt is P200,000 per year for the next 25 years. ‘The reporting unit has a carrying amount of P3,000,000. ‘Based on the above and the result of your audt, determine the following: (Assume that the appropriate discount rate for ail tems is 5%,) 1, Total amortization of intanaible assets in 2019 ‘A. 70,000 B, 58,750 C. 107,500 . 20,000 2. Total loss on impairment in 2019 ‘A. 452,470 B. P530,280 °C. 471,220 433,720 '3. Carrying amount of goodwill on December 31, 2019 ‘A. 900,000 B. P718,780 (C. a55,000 D. P659,720 4. Carrying amount of other intangible assets on December 31, 2019 ‘A. 690,000 980,000 C. 640,000 D. £706,667 Page? of 4 Pages PROBLEM NO. 3 | [BANAWE COMPANY began operations on January 2, 2011.. Shown below isthe company’ tral bance prepare byt staff acourtant for December 31,2019. (ia thousands of pesos) Debit Set sn Po ‘counts recetable 0 | Inventory | 360 | Equipment 2400 ‘Accumulated depreciation = Equipment 30 Buildings 3,600 ‘Accumulated depreciation ~ Buldings Patents | 1,650 Franchise agreement 285 Organization costs 36 Goodwill 1035 Accounts payable % Accrued wages payable 5 Accrued taxes payable 180 Bonds payable 4,500 Premium on bonds payable 105 Preference shares (P100 par value) 300 ‘Ordinary shares (P25 par value) 300 Promium on share capital 660 Retained earings (as of January 1) 3200 Sales 3700 Cost of goods sold 4,200 i Seling and adminisrative expenses a Bis = BL ‘As a member ofthe audit team for Bana Company, you have been assigned the aufit ofthe companys tage ast. Your vestigation revels the flowing: Patents ! { “The patents, acquired January 2, 2012, are being amortized ove an expected use te of 14/ years. Improvements made to equipment covered by the patenis costing P225,000 were debited | 1b the account in January 2016. Amortization In 2016-2018 included amortization on the 225,000 forthe remaining fe ofthe rtevart peter. Ils determined thatthe P225,090 should have been expensed in 2016. I's further determined on December 31,2018, that ofe of the patents has a remaining life of only 2 years. This patent was origi assigned @ cost of 630,000, Franchise Agreement [A franchise agreement was signed on January 1, 2019. A P150,000 fee was paid, covering a 5- year period, atthe end of which the company may renew the agreement by paying P1S0,000. A

    You might also like