1. On January 1, 2018, A Company purchased a patent from an original patentee for P 2,400,000.

The remaining legal life

of the patent is 15 years but the useful life is only 12 years. On January 1, 2019, the entity paid P 550,000 in successfully
defending the patent in an infringement suit filed against the entity. On January 1, 2020, the entity acquired a competing
patent for P 1,500,000. The competing has a remaining legal life of 15 years but it is not to be used because it was
intended to protect the original patent. What is the carrying amount of the patent on December 31, 2020?
a. 3,150,000 c. 3,200,000
b. 3,600,000 d. 3,500,000

2. On January 1, 2017, L Company purchased a patent for P 7,140,000. The patent is being amortized over its remaining
legal life of 15 years expiring on January 1, 2032. During 2020, the entity determined that the economic benefits of the
patent would not last longer than 10 years from the date of acquisition. What amount should be reported in the statement
of financial position for the patent, net of accumulated amortization, on December 31, 2020?
a. 4,282,000 c. 5,050,000
b. 4,896,000 d. 5,236,000

3. On January 1, 2017, C Company purchased a patent for a new consumer product for P 900,000. At the time of
purchase, the patent was valid for 15 years. However, the useful life was estimated to be only 10 years due to the
competitive nature of the product. On December 31, 2020, the product was permanently withdrawn from sale under
governmental order because of a potential health hazard in the product. What amount should be charged against income
during 2020, assuming amortization is recorded at the end of each year?
a. 720,000 c. 540,000
b. 630,000 d. 90,000

4. R Company purchased another entity for P 8,000,000 cash. The assets and liabilities of the acquiree are as follows:
Carrying Amount Fair Value
Cash 1,000,000 1,000,000
Inventory 400,000 500,000
In-process Research and Development 6,000,000 5,000,000
Assembled work force 1,100,000 1,200,000
Liabilities 2,500,000 3,000,000

What is the goodwill arising from the acquisition?

a. 4,500,000 c. 3,100,000
b. 3,300,000 d. 2,000,000

5. The owners of J Company are planning to sell the business to new interests. The cumulative net earnings for the past
five years amounted to P 16,500,000 including expropriation loss of P 1,500,000. Goodwill is measured by capitalizing
excess earnings at 25% with normal earnings at 20%. The fair value of net assets of J Company at current year end was P
10M. What is the acquisition cost of J Company?
a. 16,400,000 c. 14,400,000
b. 14,000,000 d. 15,200,000

6. On January 1, 2020, G Company acquired the following intangible assets:

I. A trademark for P 3M. The trademark has 8 years remaining in its legal life. It is anticipated that the trademark will be
renewed in the future, indefinitely, without problem.
II. A patent for P 6M. Because of the market conditions, it is expected that the patent will have economic life for just five
years, although the remaining legal life is 10 years.

On December 31, 2020, the intangible assets are assessed for impairment. Because of a decline in the economy, the
trademark is expected to generate cash flows of just P 120,000 per year. The useful life of the trademark still extends
beyond the foreseeable horizon. The cash flows expected to be generated by the patent are P 1,000,000 annually for each
of the next 4 years. The appropriate discount rate for all the intangible assets is 6%. The present value of an ordinary
annuity of 1 at 6% for four periods is 3.46.

What total amount should be recognized as impairment loss in 2020?

a. 2,340,000 c. 1,340,000
b. 3,540,000 d. 1,000,000
7. On January 1, 2020, the account balances of C Company showed patent cost of P 1,920,000 and related accumulated
amortization of P 240,000. The patent was purchased on January 1, 2018 at which date the remaining legal life was 16
years. On January 1, 2020, the useful life of the patent was determined to be only 8 years from the date of acquisition.

On January 1, 2020, the entity paid P 800,000, of which ¾ was for the trademark and ¼ was for the other entity’s
agreement not to complete for a 5-year period in the line of business covered by the trademark. The entity considers the
life of the trademark indefinite. Moreover, the entity agreed to pay P 50,000 to the other entity as consulting fee each year
for 5 years payable every January 1.

What is the amortization of intangible assets for 2020?

a. 320,000 c. 250,000
b. 280,000 d. 370,000

8. On January 1, 2017, C Company signed a 12-year lease for a building. The entity has an option to renew the lease for
an additional 6-year period on or before January 1, 2021. During January 2020, the entity made substantial improvement
to the building. The cost of the improvement was 4,500,000, with an estimated useful life of 10 years. On December 31,
2020, the entity intended to exercise the renewal option. The entity has taken a full year’s depreciation on this
improvement. On December 31, 2020, what is the carrying amount of the leasehold improvement?
a. 4,500,000 c. 4,200,000
b. 4,050,000 d. 4,000,000

9. P Company incurred research and development costs in the current year as follows:
Equipment acquired for use in various research and development projects P 975,000
Depreciation on the above equipment 135,000
Materials used 200,000
Compensation costs of personnel 500,000
Outside consulting fees 150,000
Indirect costs appropriately allocated 250,000

What is the research and development expense for the current year?
a. 850,000 c. 1,235,000
b. 1,085,000 d. 1,825,000

10. F Company made the following expenditures relating to Product Zee:

Legal costs to file a patent on Product P. Production of the finished product
would not have been undertaken without the patent P 100,000
Special equipment to be used solely for development of product P. The
equipment has no other use and has an estimated useful life of 4 years 600,000
Labor and material costs incurred in the producing a prototype model 2,000,000
Cost of testing the prototype 800,000

What is the total amount of costs that will be expensed when incurred?
a. 2,800,000 c. 3,400,000
b. 2,950,000 d. 3,500,000

11. C Company incurred the following cost during the current year:
Modification to the formulation of a chemical product P 135,000
Trouble-shooting in connection with breakdowns during commercial production 150,000
Design of tools, jigs, molds and dies involving new technology 170,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 215,000

What amount should be reported as R & D expense?

a. 520,000 c. 385,000
b. 470,000 d. 335,000
12. During the current year, Z Company incurred P 400,000 direct cost of doing contact research and development work
for the government to be reimbursed by the government unit. In addition, the entity incurred the following research and
development costs:
Depreciation P 300,000
Salaries 700,000
Indirect costs appropriately allocated 200,000
Materials 180,000

What amount should be recognized as R &D expense?

a. 1,080,000 c. 1,580,000
b. 1,380,000 d. 1,780,000

13. R Company made the following expenditures during the current year:
Cost to develop computer software for internal use P 1,000,000
Cost of market research activities 750,000

What amount of these expenditures should be reported in the income statement for the current year as research and
development expense?
a. 1,750,000 c. 750,000
b. 1,000,000 d. P 0

14. During 2020, K Company incurred costs to develop and produce a routine, low-risk computer software product as
follows:
Completion of detailed program design or working model P 1,300,000
Cost incurred for coding and testing to establish technological feasibility 1,000,000
Other coding costs after establishment of technological feasibility 2,400,000
Other testing costs after establishment of technological feasibility 2,000,000
Costs of producing product masters for training materials 1,500,000
Duplication of computer software and training materials form product master 2,500,000
Packaging product 900,000

On December 31, 2020, what amount should be capitalized as computer software cost?
a. 5,400,000 c. 5,900,000
b. 3,700,000 d. 6,900,000

15. On January 1, 2020, R Company had capitalized cost of P 6M for a new computer software with an economic life of 4
years. Sales for 2020 amounted to P 3M. The total sales of software over its useful life are expected to be P 10M. The
pattern of future sales cannot be measured reliably. On December 31, 2020, the software had a fair value less cost to sell
of P 4.8M. What is the carrying amount of the computer software on December 31, 2020?
a. 6,000,000 c. 4,500,000
b. 4,200,000 d. 4,800,000

16. K Company, a major winery, begins construction of a new facility in Mindanao. The following costs are incurred in
conjunction with the start-up activities of the new facility:
Production equipment P 8,150,000
Travel costs of salaried employee 400,000
License fees 140,000
Training of local employees for production and maintenance operations 1,200,000
Advertising costs 850,000

What portion of the organization costs should be expensed?

a. 9,750,000 c. 1,390,000
b. 1,600,000 d. P 0

17. On January 1, 2020, B Company incurred organization costs of P 240,000. What portion of the organization costs
should be deferred to years subsequent to 2020?
a. 234,000 c. 48,000
b. 192,000 d. P 0