SAINT PAUL SCHOOL OF BUSINESS AND LAW

ACCTG. 17NB

INTANGIBLE ASSETS

1. MAPASAR NA COMPANY developed a patent at cost of P200,000 and spent P120,000 for the
licensing of the patent including legal fees and cost models and drawings that accompany the
registration on January 1, 2009. The patent will be useful for the entire legal life.

On January 1, 2011, the entity paid P180,000 to attorneys for the services in connection with
the successful defense of the patent.

On January 1, 2012, the entity purchased a competing patent for P160,000 in order to
protect the original patent. The competing patent has 18 years to run from the date of
acquisition.

The patent became obsolete and worthless on July 1, 2014.

Required:
1. The cost of the patent is
a. 120,000
b. 150,000
c. 180,000
d. 200,000

2. The amortization of the patent for 2009 is

a. 6,000
b. 5,000
c. 4,500
d. 5,500

3. The amortization of the patent for 2012 is

a. 16,000
b. 15,000
c. 15,500
d. 16,500

4. The amount of patent that should be written off is

a. 216,000
b. 220,000
c. 230,000
d. 240,000

2. On January 1, 2008, an entity purchased a franchise from Jollygid Company to sell for 20
years Jollygid products for P5,000,000.

The initial franchise fee is payable in cash, P500,000 when the contract is signed and the
balance in five equal installments every December 31, evidenced by a promissory note.

The franchisee could borrow money at 12%. The agreement also provides that the franchisor
shall provide the necessary initial services required under a franchise contract.

In January 2008, Jollygid Company has substantially performed all the initial services.
Required:
1. What is the cost of the franchise?
a. 3,744,320
b. 4,500,000
c. 5,000,000
d. 3,244,320

2. The amortization expense of the franchise on December 31, 2008 is

a. 187,216
b. 275,000
c. 250,000
d. 235,000

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 3. The amortization expense of the discount on December 31, 2008 is
a. 389,318
b. 328,037
c. 259,401
d. 182,529

3. An entity leases a piece of land on which a building is constructed at a cash cost of

P5,000,000. The useful life of the building is 25 years. The terms of the lease provide that the
lessee shall pay P500,000 for lease rights and P50,000 monthly rental for a period of 20
years.
Required:
1. The amount of amortization of the leasehold is
a. 25,000
b. 200,000
c. 250,000
d. 20,000

2. The amount of depreciation of the leasehold improvement is

a. 250,000
b. 200,000
c. 25,000
d. 20,000

4. An entity purchased an ongoing business for P9,000,000 cash. The assets and liabilities of the
acquired business measured at fair value is as follows:
Assets
Cash 500,000
Accounts receivable 1,500,000
Inventory 2,500,000
Property, plant and equipment 4,000,000
Patent 1,300,000
Goodwill 1,500,000

Liabilities
Accounts payable 1,600,000
Notes payable 1,000,000
Accrued liabilities 200,000

Required:
1. The total net assets at fair value is
a. 7,000,000
b. 8,500,000
c. 8,000,000
d. 7,500,000

2. The amount of goodwill is

a. 2,000,000
b. 500,000
c. 1,500,000
d. 2,500,000

5. KAKARIT KOH COMPANY has the following data:

Net assets 7,500,000
Normal rate of return 12%

Past earnings for 5 years preceding the sale:

2006 950,000
2007 975,000
2008 950,000
2009 1,075,000
2010 1,050,000

Required:
1. The amount of goodwill assuming the use of “purchase of average excess
earnings” is
a. 500,000 c. 550,000
b. 450,000 d. 600,000

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 2. The amount of goodwill assuming the use of “capitalization of average excess
earnings” is (The goodwill is valued at the average excess earnings capitalized at 25%).
a. 400,000 c. 500,000
b. 450,000 d. 600,000

3. The amount of goodwill assuming the use of “capitalization of average

earnings” is (The goodwill is valued at average earnings capitalized at 10%).
a. 2,500,000 c. 2,000,000
b. 3,000,000 d. 1,500,000

4. The amount of goodwill assuming the use of “present value method” is

a. 360,500 c. 260,500
b. 360,000 d. 400,000

6. During the current year FAREH COMPANY (FC) incurred costs to develop and produce a
routine, low-risk computer software product, as follows:
Completion of detailed program design 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 cost after establishment of
technological feasibility 2,000,000
Cost of producing product masters for training materials 1,500,000
Duplication of computer software and training materials
from product masters (1,000 units) 2,500,000
Packaging product (500 units) 900,000

Required:
1. In FC’s year-end statement of financial position, what amount should be
reported in inventory?
a. 3,400,000
b. 2,500,000
c. 4,000,000
d. 4,900,000

2. In FC’s year-end statement of financial position, what amount should be

capitalized as software cost, subject to amortization?
a. 5,900,000 c. 5,700,000
b. 5,400,000 d. 6,900,000

3. In FC’s year-end statement of profit or loss, what amount should be reported

as outright expense?
a. 2,300,000 c. 1,000,000
b. 1,300,000 d. 2,500,000

7. Raven Company developed a trademark to distinguish its products from those of its
competitors. The following items are being treated as part of the cost of the trademark:
Marketing research to study consumer tastes 400,000
Design cost of trademark 1,500,000
Legal fee of registering trademark 150,000
Advertising to establish recognition of trademark 200,000
Registration fee with Intellectual Property Office 50,000

What amount should be capitalized as cost of trademark?

a. 1,700,000 c. 2,300,000
b. 1,900,000 d. 2,100,000

It is not good for all our wishes to be filled; through sickness we recognize the value of
health; through evil, the value of good; through hunger, the value of food; through
exertion, the value of rest.