PATENT

An entity developed a patent at cost of P200,000 and spent P120,000 for the licensing of the patent including legal fees
and cost of models and drawings that accompany the registration on January 1, 2021. The patent will be useful for the entire
legal life of 20 years.

On January 1, 2023, the entity paid P180,000 to attorneys for the services in connection with a successful defense of the paten

On January 1, 2024, the entity purchased a competing patent for P170,000 in order to protect the original patent. The competi
patent has 17 years to run from the date of acquisition.

On December 31, 2024, the product covered by the patent was withdrawn from sale under a government order because of po
hazard in the product.

JOURNAL ENTRIES:
To record the development of the patent:
Research and development expense 200,000.00
Cash 200,000.00

To record the cost of licensing of the patent:

Patent 120,000.00
Cash 120,000.00

To record the amortization of the patent for 2021:

Amortization of patent 6,000.00
Patent 6,000.00

To record the amortization of the patent for 2022:

Amortization of patent 6,000.00
Patent 6,000.00

To record the cost of successful defense of the patent in 2023:

Legal expenses 180,000.00
Cash 180,000.00

To record the amortization of the patent for 2023:

Amortization of patent 6,000.00
Patent 6,000.00

To record the acquisition of a competing patent on January 1, 2024

Patent 170,000.00
Cash 170,000.00

To record the amortization of the patent for 2024

Amortization of patent 16,000.00
 Patent 16,000.00

To write off the patent account on December 31, 2024:

Patent write off 256,000.00
Patent 256,000.00

TRADEMARK
At the beginning of the current year an entity acquired a trademark for P3,000,000. The trademark has a remaining legal life o

However, it is anticipated that the trademark would be routinely renewed in the future. Thus the trademark is considered to h
an indefinite useful life.

Accordingly, no amortization is required for the trademark. However, the trademark must be tested for impairment annually.

The trademark is expected to generate cash flows of P250,000 per year. The appropriate discount rate is 10%.

JOURNAL ENTRIES
To record the acquisition:
Trademark 3,000,000.00
Cash 3,000,000.00

To record the impairment loss:

Impairment loss 500,000.00
Trademark 500,000.00

Carrying amount 3,000,000.00

PV of cash flows or Value in use (250,000/10%) 2,500,000.00
Impairment loss 500,000.00

Mathematically, the PV of a stream of indefinite cash flows is simply computed by dividing the annual
cash flow by the discount rate.
e patent including legal fees
atent will be useful for the entire

h a successful defense of the patent.

ct the original patent. The competing

a government order because of potential

2021 6,000.00
2022 6,000.00
2023 6,000.00
2024 16,000.00
34,000.00
 256,000.00

demark has a remaining legal life of 8 years.

s the trademark is considered to have

e tested for impairment annually.

count rate is 10%.

K Company developed a new machine for manufacturing baseballs. Because the machine is considered very valuable, the enti
had it patented. The following expenditures were incurred in developing and patenting the machine:

Purchase of special equipment to be used solely for development 1,800,000.00

of the new machine
Research salaries and fringe benefits for engineers and scientists 200,000.00
Cost of testing prototype 250,000.00 2,250,000.00
Legal cost of filing of patent 150,000.00
Fees paid to government patent office 50,000.00
Drawings required by patent office to be filed with patent application 40,000.00 240,000.00

1. What amount should be capitalized as cost of patent?

2. What amount of R&D should be expensed in the current year?

KLF Corporation developed a trademark to distinguish its products from those of the competitors.

Marketing research to study consumer tastes 400,000.00

Design cost of trademark 1,500,000.00
Legal fee of registering trademark 150,000.00
Advertising to establish recognition of trademark 200,000.00
Registration fee with Intellectual Property Office 50,000.00

What amount should be capitalized as cost of trademark?

ered very valuable, the entity