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On January 3, 2012, the Jazz Company spent P480,000 to apply for and obtain a
patent on a newly developed product. The patent had an estimated useful life of 10
years. At the beginning of 2016, the company spent P90,000 in successfully
prosecuting an attempted infringement of the patent. At the beginning of 2017, the
company incurred additional costs of P200,000. It is expected that future economic
benefits will flow to the enterprise because of this expenditure through cost savings
and the asset’s use is estimated to be extended by additional 5 years. On July 1,
2020, a competitor obtained rights to a patent which made the company’s patents
obsolete.
c. How much is the loss on patent obsolescence recognized in the year 2020?
Problem 2:
Transactions during 2020 of the newly organized Jazz Corporation included the
following:
Patented a newly developed process. Legal fees to obtain the patent amounted to
P60,000 while patent application and licensing fees were P25,000. Acquired both a
license to sell a special type of product and a distinctive trademark to be printed on
the product for a total of P150,000. The license is worth twice as much as the
trademark. Constructed a shed for P200,000 to house prototypes and experimental
models to be developed in future research projects. Incurred salaries for an engineer
and chemist involved in product development totaling P220,000 in 2020.
During 2020, Jazz Corporation incurred costs to develop and produce a routine, low-
risk computer software product, as follows:
Costs incurred for coding and testing to establish technological feasibility 100,000
a. In Jazz’s December 31, 2020 statement of financial position, what amount should
be reported in inventory?
b. In Jazz’s December 31, 2020 statement of financial position, what amount should
be capitalized as software cost, subject to amortization?