EXAM about INTANGIBLE ASSETS 4

General Rule: Read the problems carefully and answer the following with solutions wisely. (10 points)
1.
An intangible asset costs P300,000 on January 1, 2019. On January 1, 2020, the asset was evaluated to
determine if it was impaired. As of January 1, 2020, the asset was expected to generate future cash flows
of P25,000 per year (at the end of each year). The appropriate discount rate is 5%. What total amount
should be charged against income in 2020, assuming that the asset had a total useful life of 10 years from
date of acquisition?

A. P30,000
B. P92,304
C. P112,048
D. P122,304

2. Quail Company bought Special Products Division in 2019 and appropriately recorded P500,000 of
goodwill related to the purchase. On December 31, 2023, the fair value of Special Products Division is
P4,000,000 and it is carried on Quail’s books for a total of P3,400,000, including the goodwill. An
analysis of Special Products Division’s assets indicates that goodwill of P400,000 exists on December 31,
2023. What goodwill impairment should be recognized by Quail in 2023?
A. None
B. P50,000
C. P200,000
D. P300,000

3. Reese Company acquired Sasha Company on January 1, 2019. The acquisition cost exceeds the fair value
of the net assets of Sasha Company by P200,000. The excess was attributed unidentifiable intangible asset
that was assigned to Sasha’s separate reporting unit. During the current year 2019, the separate reporting
unit reported revenues of P800,000. Publicly traded companies with operations similar to those of the
separate reporting unit of Sasha had price to revenue ratios averaging 1.70. The fair values and book
values of the assets and liabilities of the unit are as follows:
Book values Fair values
Identifiable assets P1,950,000 P1,900,000
Goodwill 500,000?
Liabilities 650,000650,000

What is the amount of goodwill impairment should Sasha recognize based on the above information?
A. None
B. P380,000
C. P390,000
D. P500,000

4. On January 1, 2019, Trent Company signed a 8-year lease for warehouse space. The lease contract
contains a renewal option for an additional 8-year period on January 1, 2022. On January 2, 2021, Trent
completed substantial improvements to the warehouse. The cost of these improvements was P420,000
with an estimated useful life of 15 years.

Question 1: If the likelihood of renewal is highly probable, what is the carrying amount of the improvement on
December 31, 2023 statement of financial position?
A. P330,000
B. P336,000
C. P360,000
D. P364,000

Question 2: If the likelihood of renewal is uncertain, what is the carrying amount of the improvement on
December 31, 2023 statement of financial position?
A. P210,000
B. P330,000
C. P360,000
D. P364,000