UNIVERSITY OF THE EAST- CALOOCAN

COLLEGE OF BUSINESS ADMINISTRATION

DEPARTMENT OF ACCOUNTANCY, BUSINESS LAW AND TAXATION
BAC 214 – FINANCIAL ACCOUNTING & REPORTING, Part 2
Quiz – Intangible Assets

NAME: _________________________SECTION:____________SCORE:___________

Part I – Short Problems

1. Ng Company incurred P900,000 of research and development cost to develop a product for which a patent was
granted on January 2, 2015. Legal fees and other costs associated with the registration of the patent totaled
P200,000. On July 31, 2015, Ng paid P400,000 for legal fees in a successful defense of the patent. The total
amount capitalized for this patent through July 31, 2015 should be

2. Ang Company purchased a patent on January 1, 2012, for P3,570,000. The patent was being amortized over its
remaining legal life of 15 years expiring on January 1, 2027. During 2015 Ang determined that the economic
benefits of the patent would not last longer than ten years from the date of acquisition. What amount should be
reported in the balance sheet as patent, net of accumulated amortization, at December 31, 2015?

3. On January 2, 2012, Ngan Company purchased a patent for a new consumer product for P3,000,000. At the time
of purchase, the patent was valid for 15 years. However, the patent’s useful life was estimated to be only 10
years due to the competitive nature of the product. On December 31, 2015, the product was permanently
withdrawn from sale under governmental order because of a potential health hazard in the product. What amount
should Ngan charge against income during 2015, assuming amortization is recorded at the end of such year?

4. The owners of San Company are planning to sell the business to new interests. The cumulative net earnings for
the past 5 years was P9,000,000 including casualty loss of P500,000. The current value of net assets of San
Company was P20,000,000. Goodwill is determined by capitalizing average earnings at 8%. What is the amount
of goodwill?

5. On January 1, 2015, Tan purchased Pong Company at a cost that resulted in recognition of goodwill of
P5,000,000 having an expected benefit period of 10 years. During January of 2015, Tan spent an additional
P2,000,000 on expenditures designed to maintain goodwill. Due to these expenditures, at December 31, 2015,
Tan estimated that the benefit period of goodwill was indefinite. In its December 31, 2015 balance sheet, what
amount should Tan report as goodwill?

6. On January 1, 2013, Can Company signed a 12-year lease for a building. Can has an option to renew the lease
for an additional 8-year period on or before January 1, 2017. During January 2015, Can made substantial
improvements to the building. The cost of the improvements was P3,600,000, with an estimated useful life of 15
years. At December 31, 2015, Can intended to exercise the renewal option. Can has taken a full year’s
amortization on this improvement. In the December 31, 2015, balance sheet, the carrying amount of this
leasehold improvement should be

7. On January 1, 2015, Pan Company had capitalized cost of P10,000,000 for a new computer software product with
an economic life of 4 years. Sales for 2015 for the software product amounted to P4,000,000. The total sales of
the software over its economic life are expected to be P20,000,000. However, the pattern of the future sales from
the computer software cannot be determined reliably. In its 2015 income statement, Pan should record
amortization of computer software at

Part II – Straight Problems

Problem 1

Transactions during 2015 of the newly organized Han Corporation included the following:
Jan. 2 Paid legal fees of P150,000 and stock certificate costs of P83,000 to complete
organization of the corporation.

15 Hired a clown to stand in front of the corporate office for 2 weeks and hand out
pamphlets and candy to create goodwill for the new enterprise. Clown cost, P10,000;
pamphlets and candy, P5,000.
 Apr. 1 Patented a newly developed process with costs as follows:

Legal fees to obtain patent P 429,000

Patent application and licensing fees 63,500
Total P 492,500

It is estimated that in 6 years other companies will have developed improved

processes, making the Han Corporation process obsolete.

May 1 Acquired both a license to use a special type of container and a distinctive trademark to
be printed on the container in exchange for 6,000 shares of Han’s no-par common
stock selling for P50 per share. The license is worth twice as much as the trademark,
both of which may be used for 6 years.

July 1 Constructed a shed for P1,310,000 to house prototypes of experimental models to be

developed in future research projects.

Dec. 31 Incurred salaries for an engineer and chemist involved in product development totaling
P1,750,000 in 2015.

QUESTIONS:
Based on the above, determine the following:

1. Cost of patent

2. Cost of licenses

3. Cost of trademark

4. Carrying amount of Intangible Assets

5. Total amount resulting from the foregoing transactions that should be expensed when incurred

Problem 2

On December 31, 2014, Ban Corporation acquired the following three intangible assets:

 A trademark for P300,000. The trademark has 7 years remaining legal life. It is anticipated that the trademark will be
renewed in the future, indefinitely, without problem.

 Goodwill for P1,500,000. The goodwill is associated with Ban’s Hayo Manufacturing reporting unit.

 A customer list for P220,000. By contract, Ban has exclusive use of the list for 5 years. Because of market
conditions, it is expected that the list will have economic value for just 3 years.

On December 31, 2015, before any adjusting entries for the year were made, the following information was assembled
about each of the intangible assets:

a) Because of a decline in the economy, the trademark is now expected to generate cash flows of just P10,000 per year.
The useful life of trademark still extends beyond the foreseeable horizon.

b) The cash flows expected to be generated by the Hayo Manufacturing reporting unit is P250,000 per year for
the next 22 years. Book values and fair values of the assets and liabilities of the Hayo Manufacturing
reporting unit are as follows:
Book values Fair values
Identifiable assets P2,700,000 P3,000,000
Goodwill 1,500,000 ?
Liabilities 1,800,000 1,800,000
c) The cash flows expected to be generated by the customer list are P120,000 in 2016 and P80,000 in 2017.

REQUIRED:

Based on the above, determine the following: (Assume that the appropriate discount rate for all items is 6%):

1. Total amortization for the year 2015

2. Impairment loss for the year 2015

3. Carrying value of Trademark as of December 31, 2015

4. Carrying value of Goodwill as of December 31, 2015

5. Carrying value of Customer list as of December 31, 2015

“That in all things, GOD maybe glorified”

“Salvation is found in Christ alone, for there is no other name given under heaven, by which man might be saved.
Believe in Christ, and you will be saved, you and your entire household” Acts 4:12; 16:31

‘GOD is the giver of all things. Man cannot receive anything unless it be given him from above” John 3:2