Let’s Analyze – UNIT IV

1. At year-end, an entity purchased for P30 per share all 200,000 of an acquiree’s
outstanding ordinary share. On this date, the carrying amount of net assets of the
acquiree was P5,000,000. The fair value of identifiable asset on this date was
P400,000 in excess of their carrying amount.

Required: the amount to be reported as goodwill.

Purchase price (200,000 x 30) P 6 000 000

Net assets @ FV 5 400 000
Goodwill 600 000

Carrying amount of net assets P 5 000 000

Excess fair value of identifiable asset 400 000
Fair value of net asset 5 400 000

2. 2. An entity was granted a patent on January 1, 2013 and capitalized P450,000.

The entity was amortizing the patent over the useful life of 15 years. During 2016,
the entity paid P150,000 in successfully defending an attempted infringement of
the patent. After the legal action was completed, the entity sold the patent to the
plaintiff for P750,000. The policy is to take no amortization in the year of disposal.

Required: (a) schedule for gain on sale; and (b) journal entries from 2013 to
2016.

(a)
Acquisition cost P 450 000
Amortization (450 000/ 15 x 3) (90 000)
Carrying amount 2016 360 000

Carrying Amount 360 000

Sale price 750 000
Gain on sale of patent 390 000
 (b)
2013
Patent 450 000
Cash 450 000

Amortization of patent 30 000

Patent (450 000/15) 30 000

2014
Amortization of patent 30 000
Patent (450 000/15) 30 000

2015
Amortization of patent 30 000
Patent (450 000/15) 30 000
2016
Legal expense 150 000
Cash 150 000

Cash 750 000

Patent 360 000
Gain on sale of patent 390 000

3. An entity bought a franchise at the beginning of the current year for P2, 040,000.
An independent consultant estimated that the remaining useful life of the
franchise was 50 years. The unamortized cost of the franchise was P680, 000.
The entity decided to amortize the franchise over the maximum period allowed.

Required: journal entry for the current year related to the acquisition and
amortization of the franchise.

Franchise 2 040 000

Cash 2 040 000

Amortization of franchise 40 800

Franchise (2 040 000/50) 40 800