UNIVERSITY OF CALOOCAN CITY Auditing and Assurance: Concepts and

Application I
Quiz – Audit of Intangibles

SITUATIONAL

Situation 1:

DM Corporation was organized in 2007. Its accounting records include only one account for
all intangible assets. The following is a summary of the entries that have been recorded
and posted during the years 2007 and 2008:

Intangibles
7/1/07 Franchise expiring on June 30,2015 252,000
10/1 Advance payment on lease expiring on
October 1, 2009 168,000
12/31 Net loss for 2007 including
incorporation fee, P6,000, and related
legal fees of organizing the business,
P30,000 (all incurred in 2007) 96,000
1/2/08 Acquired patent with a useful life of 10
years 444,000
3/1 Cost of developing a secret formula 450,000
4/1 Goodwill purchased 1,670,400
6/1 Goodwill recognized by the entity
arising from good reputation to the
public and profitable position in the
market 6,000,000
7/1 Legal fees for successful defense of
patent purchase on 1/2 75,900
10/1 Research and development costs on a new
project 960,000

Situation 2:

On December 31, 2016, King company purchased for P4,000,000 cash all of the
outstanding ordinary shares of Jaica Company when Jaica’s statement of financial
position showed net assets of P3,200,000. Jaica’s assets and liabilities had fair
value different from the carrying amount as follows:
Carrying Amount Fair Value
PPE – net 5,000,000 5,750,000
Other assets 500,000 -0-
Long-term debt 3,000,000 2,800,000

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