02 Task Performance 1

AUDIT OF INTANGIBLE ASSETS AND PREPAYMENTS

CASE 1: KABOOM LABORATORIES

Compute the carrying value of Patent No. 1122098 on each of the following dates:

1. December 31, 20x4 ____________

Cost to obtain patent P186,150
Less: 20x4 amortization (P186,150 /17 years) 10,950
Carrying value, Dec. 31,20x4 P175,200
2. December 31, 20x8 ____________
Carrying value, Dec. 31,20x4 P175,200
Less: 20x5 – 20x8 amortization (10,950 x 4 years) 43,800
Carrying value, Dec. 31,20x8 P131,400
3. December 31, 2x11 ___________
Carrying value, Dec. 31,20x8 P131,400
Less: 20x9 – 2x11 amortization (131,400 x 3/5) 78,840
Carrying value P52,560

CASE 2: MIKE COMPANY

4. What is the total carrying value of the intangible assets on December 31, 20x2? ____________
Acquisition cost of patent purchased P4,000,000
Less: Amortization
20x1 (P4,000,000 / 10 years) P400,000
20x2 (P4M – P400k
= P3,600,000 / 5 years) 720,000 1,120,000
Carrying value of patent, Dec. 31,20x2 P2,880,000
5. What is the total amount of charges against Mike’s income for the year ended December 31,
20x2?
Charges against Mike income:
Amortization of patent P720,000
Amortization of franchise (960,000 /10 years) 96,000
Payment to franchisor (P5M x 5%) 250,000
Research and development cost 866,000
Total P1,932,000

CASE 3: DREXLER CORPORATION

6. What is the carrying amount of the franchise on December 31, 20x4? ___________
Downpayment P75,000
Present value of 4 annual payments 131,117
 Total cost of franchise 206,117
Less: Amortization for 20x4 (P206,117/10) 20,612
Carrying amount of franchise 185,505

7. What is the carrying amount of the patent on December 31, 20x4? ____________
Cost of securing patent P49,200
Less: Amortization (P49,200 / 8) 6,150
Carrying value of patent P43,050
8. What is the carrying amount of the trademark on December 31, 20x4? ____________
Cost of trademark P120,000
Less: Amortization (120,000 / 20 x 3 6/12) 21,000
Carrying amount of trademark P99,000
9. What is the total amortization expense? ____________
Amortization of franchise P20,612
Amortization of patent 6,150
Amortization of trademark 6,000
Total amortization expense P32,762

10. What is the total amount of intangibles-related expenses (excluding amortization) that should
be reported in the income statement for the year ended December 31, 20x4? ____________
Interest expense (P131,117 x 14%) P18,356
Franchise fee (P2,700,000 x 5%) 135,000
Total P153,356

AUDIT OF CURRENT LIABILITIES

CASE 4: PALAUTANG COMPANY

11. What amount should Palautang report on Accounts Payable on its December 31, 20x1
statement of financial position? ___________
Accounts payable, Dec. 31,20x1 P900,000
Goods shipped FOB destination 50,000
Goods shipped FOB shipping point 15,000
Accounts payable, Dec. 31,20x1 P965,000
CASE 5: FEEL NA FEEL, INC

12. Adjusted balance of Vouchers Payable as of December 31, 20x1 ______________

Voucher no. Unadjusted  Adjusted

896 78,400 80,000
918 44,100 45,000
955 22,050 22,500
968 80,850 80,850
982 78,400 78,400
Vouchers payable 303,800 P 306,750

13. Purchase Discounts Lost on paid vouchers ____________

Vouchers payable P 303,800

Purchases 1,645,000
Less: Cash disbursement 1,309,500
Purchase return       36,750
Purchase discount lost P    5,050

14. Purchase discount lost on paid vouchers ____________

Vouchers payable P 303,800

Purchases 1,645,000
Less: Cash disbursement 1,309,500
Purchase return       36,750
Purchase discount lost P    5,050

CASE 6: VICTORY, INC

15. What amount of current liabilities should be reported on the December 31, 20x1, statement of
financial position? _______________
Short-term obligation, March 1,20x2 P200,000
Notes payable, Feb. 5, 20x2 4,200,000
Loan payments annually 500,000
Debt obligation, Dec.31, 20x4 600,000
Current liabilities, Dec. 31, 20x4 P5,500,000
CASE 7: JB MUSIC

16. Warranty expense for 20x1 _____________

Sale of musical instruments and sound
Reproduction equipment P5,400,000
Estimated warranty cost x 4%
Warranty expense for 20x1 P216,000
17. Estimated liability from warranties _____________
Estimated liability from warranties P136,000
Add: Warranty expense for 20x1 216,000
Less: Actual warranty cost (180,000)
Estimated liability from warranties P172,000

18. Premium expense for 20x1 ______________

Coupons issued P1,800,000
x Estimated redemption rate x 80%
Estimated number of coupons to be redeemed 1,440,000
/ Exchange rate 200
Estimated number of CD players to be issued 7,200
x Net cost of a CD player (P34 – 20) x 14
Premium expense for 20x1 P100,800
19. Inventory of premium CD players _____________
Inventory of premium CD players P39,950
Add: Premium CD players purchased (34 x 7400) 251,600
Total 291,550
Less: Premium players distributed to customers
(1,250,000/200 x 34) P212,500
Inventory of premium CD players, Dec 31, 20x1 P79,050
20. Estimated premium claims outstanding ______________
Estimated premium claims outstanding, Jan. 1, 20x1 P44,800
Add: Premium expense for 20x1 100,800
Total P145,600
Less: Actual redemptions
(1,250,000 / 200 x 14) 87,500
Estimated premium claims outstanding P58,100