AUDIT OF INTANGIBLE ASSETS

*The following financial statement assertions, specific audit objectives and common audit procedures apply
to intangibles :
Assertions Audit Objectives Audit Procedures
I. Existence or A. To determine that intangibles exist and are 1. Obtain an analyses of ledger
Occurrence
represented by contractual rights, privileges accounts for intangibles.
or earning power owned by the company. 2.Examine the documentation
supporting intangibles
II. Completeness B. To determine that all transactions 3. Vouch additions to or
relating to intangibles have been properly acquisitions to or acquisitions
recorded.
during the year.
4. Evaluate dispositions and write
offs during the year.
III. Rights and C. To determine that intangibles are owned 5. I n addition to audit procedure
Obligations
by the company. no.2 perform analytical
procedures.
I . Valuation or
V D. To determine that intangibles are stated at 6. I n addition to audit procedure
Allocation nos. 3 and 4 evaluate
cost less amortization.
amortization policy and verify
computation of amortization
V. Presentation E. To determine whether presentation and 7. Evaluate presentation in the
and Disclosure disclosures concerning intangibles are adequate financial statement and
in accordance with PAS/ PFRS. disclosure of the intangibles.

Theories - Substantive audit procedures for Intangibles. Select the best answer for each of the following:

1. In auditing intangible assets, an auditor most likely would review or recomputed amortization and determine
whether the amortization period is reasonable in support of management's financial statement assertion of:
A. Valuation
B. Existence
C. Completeness
D. Rights and obligation

2. Examining documentation of the purchase of intangible assets is consistent with the auditor's objective of
validating the management's assertion of:
A. Valuation
B. Existence
C. Completeness
D. Rights and obligation

3. When auditing prepaid insurance, an auditor discovers that the original insurance policy on plant equipment is
not available for inspection. The policy's absence most like indicates the possibility of a(n)
A. Insurance premium due but not recorded
B. Deficiency in the coinsurance provision
C. Lien on the plant equipment
D. Understatement of insurance expense
4. An auditor has set an audit objective of determining whether research and development projects were properly
authorized. Which of the following audit techniques will best this objective?
A. Inquiry
B. Observation
C. Analytical Review
D. Inspection of Documents

5. An entity developed a new secret formula which is of great value because it resulted in virtual monopoly the
entity has capitalized all research and development cost associated with this formula. The CPA who examining this
account, will probably?
A. Confirm that the secret formula is registered and on file with country clerk's office
B. Confirm with management regarding a change in the title of the account to goodwill
C. Confirm with management regarding transfer of the amount from the statement of financial position to the
income statement.
D. Confirm with the management regarding ownership of the secret formula.

6. The most effective means for the auditor to determine whether a recorded intangible asset possesses the
characteristics of an assets is to?
A. Evaluate the future revenue-producing capacity of the intangible asset.
B. Analyze research and development expenditures to determine that only those expenditure's possessing future
economic benefit have been capitalized
C. Vouch the purchase by reference to underlying documentation.
D. Inquire as to the status of patent applications.

7. An auditor reviewing the composition of a client's schedule of internally generated intangible assets will most
likely question the recognition of which of the following?
A. Patent
B. Trademark
C. Computer Software
D. Customer Lists

8. The Auditee has just acquired another company by purchasing all its assets. As a result of the purchase goodwill
has been recorded in auditee books. Which of the following comparisons would be the most appropriate audit test
for the amount of recorded goodwill?
A. The purchase price and the book value of assets purchased.
B. The figure for goodwill specified in the contract of purchased
C. Earnings in excess of 15% of net assets for the past five years
D. The purchased price and the fair market value of the asset purchase

9. In verifying the amount of goodwill recorded by the client, the most convincing evidence which the auditor can
obtain is by comparing recorded value of assets acquired with the.
A. Assessed value as evidence by tax bills
B. Appraised value as evidenced by independent appraisal
C. Seller's book value as evidenced by financial statements.
D. Insured value as evidence by insurance companies.

10. In auditing intangible assets an auditor most likely would review or recompute amortization and determine
whether the amortization period is reasonable in support of management's financial statements assertions of.
A. Completeness
B. Valuation and allocation
C. Existence or occurrence
D. Rights and obligations

11. There is goodwill involved in the acquisition of a business if the purchase price paid is in excess of the
proprietorship of the business acquired. Goodwill might view as the enjoyment of profit by the company in excess
of the normal or usual return for the industry as a whole but such goodwill is not recorded if it is not been
purchased or paid for?
A. False, True
B. True, False
C. False, False
D. True, True

12. Which statement is incorrect regarding audit of intangible assets?

A. Accountability principles allow goodwill to be held on the books of a company indefinitely and not amortized
over time.
B. Patents are amortized over the remaining legal life or their useful life
C. When testing a client's additions to an asset for research and development, the auditor must remember
but such costs should be amortized over the lesser of their legal lives or useful lives.
D. All the statements are correct.

13. Which statement is correct regarding audit of intangible assets?

A. The most effective means for the auditor to determine whether recorded intangible asset possesses the
characteristics of an asset is to inquire as to the status of patent applications
B. An auditor most likely would review or re-compute amortization and determine whether the amortization
period is reasonable in support of management's financial statement assertion of valuation.
C. When testing a client's additions to an asset for research and development, the auditor must remember
that such costs should be amortized over the lesser of their legal lives or useful lives.
D. None of these

Problems:

Problem 1
The following costs are generally incurred by a newly established entity:

Pre-opening cost of a business facility P250,000

Purchased recipes and secret formulas 150,000
Training, customer loyalty, and market share 140,000
Licensing, royalty, and stand still agreement 300,000
Operating and broadcast rights 112,000
Goodwill purchased in a business combination 500,000
A license to manufacture a steroid by means of a government grant 150,000
Cost of courses taken by management in quality engineering management 450,000
A television advertisement that will stimulate the sales in industry 100,000
Investment in associate 500,000
6 month lease payment in advance 300,000
Cost of equipment acquired through a finance lease 100,500
Internally developed customer list 120,500
Cost incurred in the corporation's formation and organization 230,000
Operating losses incurred in the start-up of the business 130,000
IIIInitial franchise fees paid 175,000
Continuing franchise fees 50,000
Internally generated goodwill 800,000
Cost of testing in search for a product alternative 125,000
Cost of purchasing a patent from an inventor 137,000
Legal cost in securing a patent 70,000
Legal costs incurred in successfully defending a patent 55,500
Cost of developing brands, mastheads, and publishing title 200,000
Cost of purchasing a trademark 250,000
An operating system of a computer 125,000
Amount paid to a lessor for the exclusive right to rent a facility under an
operating lease agreement for a period of 10 years (Hint: apply PFRS 16) 100,000
Cost of improvements on a leased facility 250,000

1. How much from the above items, including goodwill, shall be recognized as intangible assets?
a. 2,394,500 b. 1,844,000 c. 2,064,500 d. 1,974,000

Problem 2
Myron Corporation was organized in 2017. 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 2017 and
20 18:
Intangibles
7/1/17 Franchise expiring on June 30, 2025 P252,000
10/1 Advance payment on lease expiring on October 1, 2019 168,000
12/31 Net loss for 2017 including incorporation fee, P6,000, and
related legal fees of organizing the business, P30,000 (all
incurred in 2017) 96,000
1/2/18 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
7/1 Legal fees for successful defense of patent purch on 1/2 75,900
10/1 Research and development costs on a new project 960,000

Required: Ignoring income tax effects, determine the following:

2. The unamortized patent cost at December 31, 2018
a. 399,600 b. 470,880 c. 444,000 d. 394,980
3. The unamortized franchise cost at December 31,2018
a. 220,500 b. 189,000 c. 204,750 d. 236,250
4. The amount of prepayments to be reported as of December 31, 2018
a. 147,000 b. 63,000 c. 168,000 d. 126,000
5. The adjusting entries on December 31, 2018, should include a net debit to the retained earnings account at:
a. 1,778,550 b. 84,000 c. 120,750 d. 132,750
6. As a result of the adjustments at December 31, 2018, the total charges against income of 2018 should be:
a. 1,681,800 b. 1,645,800 c. 1,195,800 d. 1,682,550
Problem 3
The accounting records of Alyssa Corp. which was organized in 2017 include only one account for all intangible
assets. The following is a summary of the items debited to the said account in 2017 and 2018:

Date Particulars Amount

Jul. 1, 2017 Franchise (indefinite term) P1,260,000
Oct. 1 Lease advance payments (2-year term, starting 840,000
October 1, 2017)
Dec. 31 Net loss for 2017 including incorporation fees,
P30,000, and related legal fees of organizing the
business, P150,000. 480,000
Jan. 2, 20 18 Purchased patent (10 year life) 2,220,000
Mar. 1 Cost of developing a recipe 2,250,000
Apr. 1 Purchased goodwill
Jul. 1 Legal fee for successful defense of the patent 8,352,000
purchased in Jan 1,2018 379,500
Audit notes:
a. On December 31, 2017, the management estimates that the annual net future cash flows from the franchise's
continued use was at P180,000. On December 31, 2018, this estimate was revised due to decline in product
demand to P150,000 annually.

b. On December 31, 2018, the estimated annual net future cash flows from the patent's continued use was at
P337,822 for its remaining life.

c. The prevailing market rate of interest as of December 31, 2017 and 2018 was consistent at 12%.

Based on the above information and on your audit, answer the following requirements:
7. What is the correct carrying value of the Franchise as of December 31, 2018?
a. 1,200,000 b. 1,250,000 c. 1,260,000 d. 1,310,000
8. What is the correct carrying value of the Patent as of December 31, 2018?
a. 1,998,000 b. 1,800,000 c. 1,900,000 d. 1,880,000
9. What is the total retroactive adjustment to retained earnings beginning in 2018 as a result of your audit?
a. 585,000 b. 480,000 c. 900,000 d. 420,000
10. What is the total amount chargeable to expense for the current year (2018) as a result of your audit?
a. 3,479,500 b. 2,861,500 c. 3,049,500 d. 3,059,500

Problem 4
The following account balances are excerpt from STU Corporation's trial balance for the audit period ended
December 31, 2018:
Patents P4,940,000
Licensing agreement 1,680,000
Trademark 1,606,000
Leasehold improvements 1,300,000

Audit notes:
a. Patents for STU's manufacturing process were acquired January 2, 2018, at a cost of P3,740,000. An additional
amount of P1,387,000 was spent on December 30, 2018, for repairs on machinery covered by the patents and
charged to Patent account. The repairs were necessarily incurred to bring back the said machinery to its original
working condition. STU uses the straight-line method for all depreciation and amortization. The useful life of the
patent is its legal life.

b. On January 1, 2016, STU purchased the Licensing agreement, which was useful for ten years. The Licensing
Agreement account balance included the purchase price of P2,160,000 and P240,000 cost to train employees at
the inception of the licensing agreement. The license have been amortized over the agreement term which is 10
years.

c. A trademark was purchased by STU for P1,280,000 on July 1, 2016. Expenditures for the successful litigation in
defense of the trademark totaled to P326,000 were paid on July 1, 2018 and were charged to the trademark
account. The trademark was estimated to have an indefinite life. By the end of 2018, the company estimated to
generate annual net future cash flows from the continued use of the trademark at P90,000. The prevailing market
rate of interest on this date was at 9%.

d. A 10 year non-renewable lease was signed January 3, 2018, for the leased building that STU used in
manufacturing operations. The Leasehold Improvement account includes:
P900,000 cost of improvements with a total estimated useful life of 5 years, which was completed on
March 1, 2018.
P400,000 lease bonus paid for the exclusive right to occupy the leased property for the duration of the
lease term without the lessor having the right to lease it out to other third parties.
The lease agreement calls for annual payments of P500,000 per year every December
31. The implicit lease rate is 10%.
Amortization/depreciation is yet to be recognized on lease-related assets.

Based on the above information and on your audit, answer the following requirements:
11. What is the correct carrying value of the Patent as of December 31, 2018?
a. 3,553,000 c. 4,680,000
b. 3,366,000 d. 4,753,000
12. What is the correct carrying value of the Licensing Agreement as of December 31, 2018?
a. 1,536,000 c. 1,728,000
b. 1,334,000 d. 1,512,000
13. What is the total retroactive adjustment to retained earnings in 2018 related to the Licensing agreements
accounts?
a. 216,000 c. 180,000
b. 192,000 d. none
14.What is the correct carrying value of the Trademark as of December 31,2018?
a. 1,606,000 c. 1,000,000
b. 1,280,000 d. 768,927
15. What is correct amount to be capitalized as right of use asset (excluding the leasehold improvement) at the
beginning of 2018?
a. 3,072,284 c. 3,472,284
b. 3,242,293 d. None
16. What is the total depreciation to be recognized for 2018 in relation to the lease agreement (right of use asset
and leasehold improvement)?
a . 347,228 c. 497,228
b. 527,228 d. 150,000
Problem 5
Nicole Corp. holds a valuable patent on a precipitator that prevents certain types of air pollution. Nicole does not
manufacture or sell the products and process it develops. Instead, it conducts research and develops products and
processes which it patents, and then assigns patents to manufactures on a royalty basis. Occasionally it sells
patents. The following presents the summary of the activities in relation to the aforementioned patent:

2008-2009 Research aimed at the discovery of the new technology P3,840,000

Jan. 5, 2010 Design and construction of a prototype 876,000
Mar. 15 Testing the prototype models 420,000
Jan. 2, 2011 Legal and other professional fees to process the patent
application (useful life is 15 years) 660,000
Dec. 10, 2013 Legal fees paid to successfully defending the device patent 357,000
Jan 3, 2015 Acquisition of a competitive patent aimed at protecting old patent
and increasing expected revenue from the original patent. 220,000
Jan 5, 2016 Acquisition of the related patent which extended the life of the
patents for additional 3 years 335,000
Dec. 31, 2018 Legal fees paid in unsuccessful patents infringement suit
against a competitor 250,000

Requirements:
17. What is the correct cost of the patent upon initial recognition?
a. 5,756,000 b. 1,916,000 c. 1,040,000 d. 660,000
18. What is the carrying value of the patent on December 31, 2011?
a. 572,000 b. 616,000 c. 660,000 d. 5,468,200
19. What is the amortization expense on the patent in 2015?
a. 20,000 b. 44,000 c. 64,000 d. 65,000
20. What is the carrying value of the patent on December 31, 2015?
a. 640,000 b. 845,625 c. 465,000 d. 440,000
21. What is the amortization expense on the patent in 2016?
a. 68,000 b. 70,000 c. 72,000 d. 75,000
22. What is the carrying value of the patent of December 31, 2017?
a. 800,000 b. 825,000 c. 900,000 d. 925,000
23. What is the total impairment loss from patent to be recognized in 2018?
a. 700,000 b. 750,000 c. 825,000 d. 850,000

Problem 6
DEF Corp's patents had carrying value amounting to P550,000 as of December 31, 2018, before amortization. All
patents were purchased on January 2, 2010, 6 years after their registration. Thus, these patents are being
amortized over their remaining legal life from date of purchase. Repairs cost made to equipment covered by the
patent costing P75,000 were debited to the account on January 2015. Amortization in 2015-2017 included
amortization on the P75,000 for the remaining life of the relevant patent. It is determined that the P75,000 should
have been expensed in 2015.

It is further determined on December 31,2018, before any amortization is made, that one of the patents has a
remaining life of only 2 years from the start of the current year. This patent had an original cost of P210,000.

24. What is the correct amortization expense in 2018?

a. 45,000 b. 68,333 c. 83,333 d. 113,333
25. What is the adjusted carrying value of the patent as of December 31, 2018?
a. 386,667 b. 500,000 c. 550,000 d. 600,000
26. What is the retroactive adjustment to the retained earnings in 2018?
a. 25,000 b. 50,000 c. 55,000 d. 75,000

Problem 7
During 2018, Sahara Corp. purchased a building site for its proposed research and development laboratory at a
cost of P2,400,000. Construction of the building commenced in 2016. The building was completed on December
31, 2017, at a cost of P11,200,000 and was placed in service on January 2, 2018. The estimated useful life of the
building 20 years. The company's policy is to depreciate the asset using straight-line method to zero residual value.

Management estimates that about 50% of the projects of the research and development group will result in long-
term benefits, that is for at least 10 years, to the corporation. The company, however, failed to demonstrate how
such projects will general the said probable future economic benefits. The remaining projects either benefit the
current period or are abandoned before completion. The following is a summary of the number of projects and
the direct costs incurred in conjunction with the research and development activities for 2018:

Number of Project Salaries and other employee benefits Other Expense

(Except depreciation)
Completed projects with 30 P3,600,000 P2,000,000
long-term benefits
Abandoned projects 20 2,600,000 600,000
Projects in progress - 10 1,600,000 480,000
results indeterminate

Upon the recommendation of the R&D Department, the company acquired a patent for manufacturing rights at a
total cost of P3,200,000. The patent was acquired on April 1, 2017, and is useful for 10 years.

Requirements:
27. What is the carrying value of any capitalizable internally developed intangibles as of December 31, 2018?
a. 3,600,000 b. 5,600,000 c. 7,680,000 d. none
28. What is the total research and development expense for 2018?
a. 5,840,000 b. 11,760,000 c. 10,880,000 d. 11,440,000
29. What is the amortization expense on the patent for 2018?
a. 160,000 b. 320,000 c. 240,000 d. none
30. What is the carrying value of the building on as of December 31, 2018?
a. 10,640,000 b. 11,200,000 c. 10,080,000 d. 12,920,000
31. What is the carrying value of the patent on as of December 31, 2018?
a. 2,560,000 b. 2,640,000 c. 3,200,000 d. O
Problem 8
In line with Can Corp.'s expansion program, it has become interested in acquiring a plant in Mindanao to handle
many of its production functions in that area. One prospective seller is Mariwasa Co. whose owners have decided
to sell their business if a proper settlement can be agreed upon. Mariwasa Co.'s statement of financial position
appears as follows:

Current Assets P9,000,000 Current Liabilities P4,800,000

Investments 3,000,000 Noncurrent Liabilities 6,000,000
PPE, net 24,000,000 Ordinary shares 3,000,000
Share premium 10,200,000
Accum. Profits 12,000,000
Total P36,000,000 Total P36,000,000

Can has hired an appraisal company to determine the proper valuation of its assets and has ascertained that the
investments has a fair value of P9,000,000 while inventories were understated by P4,800,000. An examination of
the company's income for the last 4 years indicates that the net income has a steady increase of 20%. Net income
in 2017 was at P6,000,000. The company believes that this trend will continue over the next 4 more years. Based
on industry performance, it is believed that the normal rate of return for businesses similar to Mariwasa was at
18%. Determine the proposed acquisition price assuming that goodwill shall be computed as follows:

32. Capitalization of average excess earnings at 18%:

a. 89,680,000 b. 72,000,000 c. 36,572,832 d. 53,680,000
33. Purchase of excess earnings for four years:
a. 48,729,600 b. 39,182,400 c. 61,920,000 d. 45,662,400
34. Capitalization of average earnings at 20%
a. 48,312,000 b. 39,182,400 c. 61,920,000 d. 45,662,400
35. Present value of the average excess earnings for four years at 15%:
a. 63,585,958 b. 55,182,400 c. 45,085,683 d. 45,662,400

Problem 9
Megamall Company's own research department has an on-going project to develop a new production process. At
the end of 2018, Megamall had already spent a total of P600,000, of which P540,000 was incurred before
November 1, 2018. On November 1, 2018, the company's newly developed production process met the criteria for
recognition.

At the end of 2018, a reasonable estimate placed the present value of all expected future net cash flows (including
costs to complete) from developed intangible to be at P500,000.

During 2019, Megamall incurred additional expenditure on the project at P1,200,000. At the end of 2019, the
recoverable amount of the intangible asset was estimated to be at P1,140,000, including future cash outflow to
complete the process before it is ready for use.

Requirements:
36. How much from the expenditures above should be expensed in 2018?
a. 600,000 b. 540,000 c. 60,000 d. 0
37. How much from intangible should be reported in the December 31, 2018 statement of financial position?
a. 600,000 b. 540,000 c. 60,000 d. O
38. How much from intangible should be reported in the December 31, 2019 statement of financial position?
a . 1,800,000 b. 1,740,000 c. 1,260,000 d. 1,140,000
39. How much impairment loss from the intangible should be reported in the December 31, 2019 statement of
comprehensive income?
a. 0 b. 60,000 c. 120,000 d. 600,000

Problem 10
Bohol Corporation maintain the following items in its Intangibles account as of the fiscal year ended June 30, 2018:
Intangibles:
Research AM 123 P65,650
Copyrights 63,000
Goodwill 32,000

Audit findings:
a) Research AM 123 is for a research project which consists of the following charges:
Salaries of research staff P18,500
Patent acquired solely for the use in the project 12,000
Special equipment acquired and useful for
various similar research activities 10,000
Patent acquired for use in several research
projects including Project AM 123 16,200
Cost of pilot models 8,950
Total P65,650
The patent have generally been found to be useful for approximately ten years while the special equipment useful
for five years. You have further discovered both patents and the specialized equipment were acquired at the
beginning of the fiscal year, and that cost of models and salaries were incurred evenly throughout the fiscal year.
Amortization is yet to be made on the related intangible.

b) The company 's copyright were accounted for as follows :

Asset Acquisition Date Useful life Cost
Copyright ABC January 2, 2014 25 years P30,000
Copyright XYC July 15, 2015 15 years 33,000
You have discovered that the company made no amortizations on the above intangibles from the year of
acquisition.

c) The company's goodwill was acquired as part of a business combination when it acquired the net assets of its
then rival, Cebu Corp. at an acquisition cost amounting to P1,582,0000 on February 24, 2016. Cebu's net assets
were carried in its books at P1,550,000 while their fair value aggregated to P1,560,000.

d) Management has now decided to correct its past accounting treatment deciding to use the straight line method
of amortizing intangibles computed to the nearest half -year.

REQUIREMENTS:
40. What is the carrying value of the following intangibles as of June 30, 2018?
A B C D
a. Project 123 0 10,000 18,950 36,250
b. Patent 23,580 19,800 16,200 14,580
c. Copyrights 50,500 51,000 59,600 63,000
d. Goodwill 0 22,000 32,000 50,000
41. How much should be recognized as research and development expense for the fiscal year 2018?
a. 27,450 b. 37,450 c. 39,450 d. 43,070
42. How much is the amortization expense for the copyrights in fiscal year 2018?
a. 3,400 b. 2,800 c. 2,300 d. 2,000
43. How much is the amortization expense for the goodwill in fiscal year 2018?
a. 0 b. 1,100 c. 1,600 d. 2,000

Problem 11
The following costs were incurred by Tailor Corp. during 2018:

Searching for applications of new research findings P57,000

Trouble-shooting in connection with breakdowns during commercial
production 87,000
Adaptation of an existing capability to a particular requirement or
customer's need as a part of continuing commercial activity 39,000
Engineering follow-through in an early phase of commercial production 45,000
Radical modification of the formulation of a glassware production 78,000
Laboratory research aimed at discovery of new knowledge 204,000
Testing for evaluation of new products 72,000
Quality control during commercial production, including routine
testing of products 174,000
Materials consumed in research and development projects 177,000
Consulting fees paid to outsiders for research and projects 300,000
Personnel costs of persons involved in research and devt projects 384,000
Indirect costs reasonably allocable to research and devt projects 150,000
Materials purchased for future research and devt projects 102,000
Research and devt costs reimbursable under a contract to perform
research and devt for Cleint Corporation 1,050,000
Design, construction, and testing of preproduction prototypes and models 870,000
Routine and on-going efforts to refine, enrich, or otherwise, improve upon
the qualities of an existing product 750,000
TOTAL P4,539,000

44. What is the total amount to be classified and expensed as research and development for 2018?
a. 3,342,000 b. 2,292,000 c. 2,394,000 d. 2,220, 000

Problem 12
Your audit client Sunlife Malakas Corp. (Which is an entity required to apply the PFRS for SMEs provided the
following information related to its intangible assets:

The entity is developing a new production process. During 2021 expenditures incurred was Pl000,000, of which
P900,000 was incurred before December 1, 2021 and Pl00,000 was incurred during December 2021. The entity is
able to demonstrate the technical feasibility of production process at December 1,2021. The recoverable amount
of the know-how embodied in the process (including the future cash outflows to complete the process before it is
available for use) is estimated to be P500,000.
>- On January 1,20202 the entity purchased another company at cost that resulted in recognition of goodwill of
P5,000,000. During January of 2021, the entity spent additional P2,000,000 on expenditures designed to maintain
goodwill. Due to these expenditures, at December 31, 2021, the entity estimated that the benefit period of
goodwill was indefinite.

>- On January 12021 the entity acquired a transferable nine-year license by way of government grant when the fair
value of the license was P900,000. The license is given free of charge to the entity on the basis of the entity
performance and there are no future performance conditions attached to the grant.

Requirements:
45. At the end of 2021, the production process is recognized as an intangible asset at?
a. Nil b. 100,000 c. 500,000 d. 1,000,000

46. In its December 31, 2021 Statement of Financial Position, what should the entity report as goodwill?
a. 4,000,000 b. 5,000,000 c. 5,600,000 d. 7,000,000

47. The entity shall recognize income from government grant in 2021 profit or loss of?
a. Nil b. 90,000 c. 100,000 d. 900,000