100AUDIT OF INTANGIBLES (1)

Information concerning Citi Corporation’s intangible assets is as follows:

1. On January 1, 2020, Citi signed an agreement to operate as a franchisee of Fuji Copy

Service Inc. for an initial franchise fee of P850,000, Of this amount, P250,000 was paid
when the agreement was signed and the balance is payable in four annual payments of
P150,000 each beginning January 1, 2021. The agreement provides that the down
payment is not refundable and no future services are required of the franchisor. The
present value at January 1, 2020, of the four annual payments discounted at 14% (the
implicit rate for a loan of this type) is P437,700.00. The agreement also provides that 5%
of the revenue from the franchise must be paid to the franchisor annually. Citi’s revenue
from the franchise for 2020 was P9,000,000.00. Citi estimates the useful life of the
franchise to be ten years.

2. Citi incurred P780,000 of experimental and development costs in its laboratory to

develop a patent which was granted on January 2, 2020. Legal fees and other costs
associated with registration of the patent totaled P164,000. Management estimates that
the useful life of the patent will be eight years.

3. A trademark was purchased from Sunbar Company for P400,000.00 on July 2, 2017.
Expenditures for successful litigation of the trademark amounting to P100,000.00 were
paid on July 1, 2020. Management estimates that the useful life of the trademark will be
20 years from the date of acquisition.

Required:

1. Prepare a schedule showing the Intangibles section of Citi Company’s statement of

financial position at December 31, 2020. Show supporting computation in good form.

2. Prepare a schedule showing all expenses resulting from the transactions that would
appear on Citi’s statement of comprehensive income for the year ended December 31,
2020. Show supporting computations in good form.