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DISCUSSION QUESTIONS
In a separate sheet of paper, kindly copy the questions, then answer.
1. What are the two main characteristics of intangible assets?
2. If intangibles are acquired for stock, how is the cost of the intangible determined?
3. Intangibles have either a limited useful life or an indefinite useful life. How
should these two different types of intangibles be amortized?
4. Why does the accounting profession make a distinction between internally
created intangibles and purchased intangibles?
5. In 2020, Ghostbusters Corp. spent P420,000 for “goodwill” visits by sales
personnel to key customers. The purpose of these visits was to build a solid,
friendly relationship for the future and to gain insight into the problems and
needs of the companies served. How should this expenditure be reported?
6. What are factors to be considered in estimating the useful life of an intangible asset?
7. What should be the pattern of amortization for a limited life intangible?
8. Columbia Sportswear Company acquired a trademark that is helpful in
distinguishing one of its new products. The trademark is renewable every 10
years at minimal cost. All evidence indicates that this trademarked product will
generate cash flows for an indefinite period of time. How should this trademark
be amortized?
9. Explain how losses on impaired intangible assets should be reported in income.
10. What is the nature of research and development costs?
PROBLEMS
Show your complete solution, in good accounting form, on a separate sheet of paper.
Problem 1
Americano Co. developed a new machine for manufacturing baseballs. Because the
machine is considered very valuable, the company had patented it. The following
expenditures were incurred in developing and patenting the machine:
Research Salaries and fringe benefits for scientists P100,000
Cost of testing prototype 250,000
Legal cost for filing of patent 230,000
Fees paid to government patent office 140,000
Drawing acquired by patent office to be
filed with patent application 75,000
Problem 2
French Vanilla Company commenced operations in the current year. A number of expenditures
were made during the current year that were debited to one account Intangible asset.
Incorporation fees and legal costs related to organizing the
incorporation P150,000
Fire Insurance premium for three-year period 60,000
Legal fees for filing a patent on a new product resulting from an A&B
project 50,000
Purchase of copyright 300,000
Legal fees for successful defense of the patent developed from the
project 50,000
Entered into a 10-year franchise agreement with a franchisor 600,000
Advertising cost 50,000
Purchase of all the outstanding ordinary shares of an acquire. On the
date of purchase, the acquire had fair value of total assets,
P6,000,000 and total liabilities of P2,200,000. 5,000,000
Problem 3
During 2019, Latte Inc., spent P5,000,000 developing its new “Hyperion” software
package. Of this amount, P2,200,000 was spent before technological feasibility was
established for the product, which is to be marketed to third parties. The package was
completed at December 31, 2019. Latte expects a useful life of 8 years for this product
with total revenues of P16,000,000. During the first year (2020), Latte realizes
revenues of P3,200,000.