Amortization and impairmentof intangible assets

The Terran Company acquired several small companies at the end of 2014 and, based on the
acquisitions, reported the following intangibles in its December 31, 2014 statement of financial
position:

Patent P200,000
Copyright 400,000
Tradename 350,000
Computer software 100,000
Goodwill 900,000

The company’s accountant determines the patent has an expected life of 10 years and no
expected residual value, and that it will generate approximately equal benefits each year. The
company expects to use the copyright and tradename for the foreseeable future. The accountant
knows that the computer software is used in the company’s 120 sales offices. The company has
replaced the software in 60 offices in 2015, and expects to replace the software in 40 more
offices in 2016 and the remainder in 2017.

In December 31, 2015, there are no indications of impairment of patent and computer software.
The following information relate to the other intangible assets:

a.) Because of the rampant piracy, the copyright is expected to generate cash flows of just
P8,000 per year.

b.) The tradename is expected to generate cash flows of P15,000 per year.

c.) The goodwill is associated with Terran’s SCV Manufacturing reporting unit. The cash
flows expected to be generated by the SCV Manufacturing reporting unit is P200,000 per
year for the next 24 years. The reporting unit has a carrying amount of P2,100,000.

REQUIRED:

Based on the above and the result of your audit, determine the following: (Assume that the
appropriate discount rate for al litems is 5%)

1. Total amortization of intangible assets in 2015

2. Total loss on impairment in 2015

3. Carrying amount of goodwill on December 31, 2015

4. Carrying amount of other intangible assets on December 31, 2015

SOLUTION:
Requirement No. 1
20,0
Patent (P200,000/10) 00
50,0
Computer software [P100,000 x (60/120)] 00
70,0
Total amortization 00
*The useful lives of copyright and tradename are indefinite, so no amortization expense is
recognized.
** Goodwill is not amortized.

Requirement No. 2
Impairment loss
Copyright:
400,0
Carrying amount 00
160,0 240,0
Recoverable amount (P8,000/0.05) 00 00
Tradename:
350,0
Carrying amount 00
300,0 50,0
Recoverable amount (P15,000/0.05) 00 00
Goodwill:
Carrying amount of Anne Manufacturing 3,000,0
unit 00
2,818,7 181,2
Recoverable amount (P200,000 x 14.0939) 80 20
471,2
Total impairment loss 20

Requirement No. 3
900,0
Original amount of Goodwill 00
181,2
Less impairment loss 20
718,7
Carrying amount of Goodwill, 12/31/12 80

Question No. 4 – A
180,0
Patent (P200,000 - P20,000) 00
 160,0
Copyright (recoverable amount) 00
300,0
Tradename (recoverable amount) 00
50,0
Computer software (P100,000 - P50,000) 00
Carrying amount of other intangible assets, 690,0
12/31/12 00