INTANGIBLE ASSETS – GROUP 4

Objective: To apply the recognition and measurement criteria on intangible assets.

Time required:

Group work - 10 minutes

Presentation - 15 minutes
Total 25 minutes

Instructions:

1. Read the assigned case and discuss with your group.

2. Answer the questions at the end of each case.
3. Write the answers on a separate yellow paper with complete solutions and
explanations.
Case 1:

On February 1, 2015, Agency A purchased a new software package to operate its production
equipment for P600,000, including P50,000 non-refundable purchase taxes. Training costs to
train production staff in how to operate the new software were incurred amounting to P10,000.

In March 1 2015, the following costs were incurred to make further modifications necessary to
get the new software to function as intended by management.
a. Material – P21,000
b. Labor – P11,000
c. Depreciation of plant and equipment while it was used to perform the modifications – P5,000

The new software was ready for use on April 30, 2015.

1. Should Agency A recognize the software package as an intangible asset? Why or why not?
2. If the answer for number 1 is yes, what is the cost of the software at initial recognition?

Case 2:

On January 1, 2015, Agency A issued to Agency B license to use its software for a 10 year
period. The license was given free of charge without imposing specified future performance
conditions. At the date the right was acquired, its carrying amount and fair value were
P1,500,000 and P1,000,000, respectively.

1. At what cost should Agency B initially recognize the software license?

 INTANGIBLE ASSETS – GROUP 4

Case 3:

On 1 April 2015, Agency C exchanged an aircraft with a carrying amount of P6,000,000 for a
copyright whose fair value cannot be reliably measured.

1. What is the cost of the copyright at initial recognition?

2. If on the date of acquisition, the fair value of the copyright was P4,000,000, at what cost
should the copyright be initially recognized?

Case 4:
On January 1, 2015, Agency A spent P8,575,000 developing a new computer software. Of this
amount, P3,575,000 was spent before technological feasibility was established for the software.
The software is expected to increase total cost savings by P16,000,000 and to operate with an
estimated useful life of 10 years. On December 31, 2015, Agency A successfully completed the
software.

Requirements:

a. Prepare journal entries for the foregoing facts.

b. Prepare the entry to record amortization at December 31, 2015.
c. At what amount should the computer software be reported in the December 31, 2015
Statement of Financial Position?
d. What information should be disclosed in the notes to Financial Statements?