IntAcc.

For Practice Solving. (Intangible assets, Investment property, and noncurrent assets held for sale). Please
submit your computations in good form.

1. On April 1, 2022, Pink Company signed an agreement to operate as a franchisee for a franchise fee of
P5,000,000. Of this amount, P2,000,000was paid when the agreement was signed and the balance is
payable in six semi-annual payments of P500,000 every Dec. 31, and June 30. The first payment is due on
Dec. 31, 2021. Pink Company’s credit rating indicates that it can borrow money at 8% per annum for a loan
of this type. Information on present value factors (PV) are:

PV of an ordinary annuity of 1 at 8% for 3 periods-----------2.5771

PV of an ordinary annuity of 1 at 4% for 6 periods-----------5.2421

What is the cost of Franchise acquired on April 1, 2022?

2. On April 1,2021, Red Company purchased a franchise for P3,125,000. In addition , the franchise contract
stipulates that Red shall pay to the franchisor, 5% of its sales exceeding P5,000,000, payable at the end of
the month following the end of every quarter. For the nine months ended Dec. 31, 2021, Red company’s
sales amounts to P8,500,000. The estimated useful life of the franchise is 10 years. It is the company’s
policy to amortize to the nearest month.

a. How much is the amortization expense for the year 2021?

b. How much is the franchise fee expense for the year 2021?

3. Yellow Company acquired a trademark for P10,000,000 from Orange Company on January 5, 2021. The
trademark is carried in the accounting records of Orange at an amortized cost of P7.6 million. Yellow
Company’s consultant has estimated that the useful life of the trademark to be indefinite.

What amount should Yellow report as accumulated amortization at Dec. 31, 2021?

4. At December 31, 2020, Green company had three existing patents shown below:
Date Acquired Cost Useful life
Patent A February 14, 2016 P 150,000 8 years
Patent B January 3, 2019 210,250 10 years
Patent C July 1, 2019 72,000 5 years

During 2021, the company had the following transactions and assessments:
 Due to the emerging competition relating to the product being manufactured in Patent A, it is
expected that the right will be useful only in 2021 and 2022.

 Patent B is believe to be uniquely useful as long as the company retains the right to use it.

 On June 1, 2021, the company unsuccessfully attempted to defend its right to Patent C. Legal fees
of P15,000 was incurred in this action. The asset was immediately derecognized in the accounts.

The company’s policy is to take full year amortization in the year of acquisition and no amortization
in the year of derecognition using straight-line method.

How much is the amortization of patent for the year 2021?

5. On January 1, 2020, Blue company purchased X company for P25 Million. At such date, X Company had
total assets of P 24,000,000 and total liabilities of P3,000,000. The excess payment was appropriately
recognized as goodwill and is expected to have a benefit of 10 years. During the year 2021, Blue spent an
additional P1,000,000 on expenditures designed to maintain goodwill. Due to these expenditures, Blue
estimated that the benefit period of goodwill had increased an additional 10 years.

What amount of goodwill should Blue Company report on December 31, 2021?
 6. Purple Company is negotiating to acquire the net assets of Magenta Company. Purple is willing to pay
for goodwill computed by capitalizing at 25% Magenta’s average earnings in excess of the 10% normal
return based on appraised value of net assets. Magenta’s income for the past three years average
P3,000,000. Magenta’s assets and liabilities are:
Book value Appraised value
Assets, excluding goodwill P30,000,000 P39,000,000
Liabilities 10,500,000 10,500,000

What is the amount of goodwill?

7. Black Company is acquiring White company on January 1, 2021. The cumulative earnings of White from
2016 to 2020 amounted to P7.2 million. On January 1, 2021, the assets and liabilities of White at appraised
values are P10.35 million and P6.65 million respectively. The normal return in White’s industry is 20%.
Goodwill is computed by capitalizing at 25% average earnings in excess of normal return based on
appraised value of net assets.

What is the amount paid by Black Company in the acquisition of White company?

8. Brown Company uses fair value model for its investment property. At December 31, 2021, the company
has the following property items.
Acquisition
cost/Carrying Fair value at
Property item value 12/31/21
Land held for future plant site 10,000,000 12,500,000
Land held for a currently undetermined future use 5,000,000 6,500,000
Land and building acquired under finance lease being used in
operations. 14,000,000 15,000,000
Building (30% of the space is owner occupied and the
remainder is being leased to others under operating leases. 12,000,000 10,000,000
Building being leased out under finance lease. 8,500,000 9,000,000
Building being used by the company for its operations 7,900,000 8,500,000
Building being leased out under operating lease 6,500,000 7,000,000
Equipment being leased out under operating lease 1,700,000 2,200,000

What is the correct total of investment property reported by Brown Company at December 31, 2021?

On February 14, 2022, Frozen Company classified a non-current asset as held for sale. At that time, the
asset’s carrying amount was P64,000. It’s fair value was estimated at P48,000 and the cost to sell at
P3,800. On May 9, 2022, the asset was sold for P42,000 and paid transaction costs of P2,000. The company
accounts for non-current assets using the cost model.

9. How much impairment loss is to be recorded by Frozen relating to the non-current assets held for sale?
10. At what amount should the non-current assets held for sale be recorded on Feb. 14, 2022?
11. How much gain(loss) is to be reported by Frozen on the disposal of the non-current assets held for sale?

Brave Corporation acquired equipment on January 3, 2018 at a cost of P100,000. The estimated useful life
of the equipment is 10 years with estimated residual value of P10,000. The company uses straight-line
depreciation, computed to the nearest month. On October 1, 2021, the equipment was made “held for
sale”. It’s fair value on this date was P50,000 and the cost to sell was estimated at P2,000. In January 2022,
the asset was sold for P50,000 and disposal cost incurred amounted to P3,000. (Brave Corporation uses Fair
value model)

12. At what amount should the non-current assets held for sale be recorded on Oct. 1, 2021?
13. How much impairment loss is to be recorded by Brave relating to the non-current assets held for sale?
14. How much gain(loss) is to be reported by Frozen on the disposal of the non-current assets held for sale?

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