Determine whether the cost item is capitalized as intangible asset, outright expense or others.

Expense a. Internally developed publishing titles and mastheads

Intangible asset b. Acquired government license for a special type of operation

Expense c. Organization cost to set up the business

Others
d. Cost of a building to be used for several R&D projects

Expense e. Depreciation of item (d)

Expense f. Coding and testing costs in order to established feasibility of an internally gene

Intangible asset g. Coding and testing costs after the establishment of technological feasibility of a

Expense h. R&D cost (laboratory research, employee benefits of scientist and engineers)

Intangible asset i. Patent applications and licensing fees

Others j. Purchase cost of a software to be used as the entity’s accounting information sy

Expense k. Research cost (satisfying all the requirements for capitalization under PAS 38)

Expense l. Cost of an equipment used specifically only for a particular R&D project

Others m. Leasehold improvement PPE

Expense n. Litigation cost incurred for the unsuccessfully defense a copyright

Intangible asset o. Purchase cost of a software to be leased out to clients

Expense p. Litigation cost incurred for the successfully defense a copyright

Intangible asset q. Customer list acquired from a third party

Intangible asset r. Design cost of the trademark

Expense s. Completion of detailed program design of internally generated software

Expense t. Publicity cost to establish recognition of a trademark

Expense u. Development cost (satisfying majority of the requirements for capitalization un

Intangible asset v. Legal and administrative cost incurred in the application of a patent

Intangible asset w. Initial fees to acquire a franchise right

Expense x. Costs incurred but not specifically identifiable as research cost or development

Others y. Duplication of computer software (internally generated) from product master

Others z. Packaging of computer software for sale (internally generated)

Intangible asset aa. Internal expenditure for internally generated website (satisfying requirement
Expense bb. Licensing cost to establish a new company

Intangible asset cc. Cost of product master of an internally generated software

Expense dd. Routine on-going efforts to refine and enrich existing products

Intangible asset ee. Registration fees in the intellectual property office

Intangible asset ff. Design cost incurred to add minor changes required by the Bureau of Patent

Intangible asset gg. Additional development cost for the project applied for patent to ensure it is
pense or others.

Cost as PPE

ty of an internally generated software

hnological feasibility of an internally generated software

ientist and engineers)

counting information system as PPE

lization under PAS 38)

lar R&D project

a copyright

nerated software

nts for capitalization under PAS 38)

n of a patent

ch cost or development cost (satisfying all of the requirements for capitalization under PAS 38)

) from product master inventory

inventory

(satisfying requirements of PAS 38) with probable future economic benefits

 the Bureau of Patent

or patent to ensure it is at operational stage

Transactions during 2005 of the newly organized Pink Corporation included the following:
Jan. 2 Paid legal fees of P150,000 and stock certificate costs of P83,000 to complete organization of th

Jan. 15 Hired a clown to stand in front of the corporate office for 2 weeks and hound out pamphlets &
Clown cost, P10,000; pamphlets and candy, P5,000.

Apr. 1 Patented a newly developed process with costs as follows:

Legal fees to obtain patent 429,000
Patent application and licensing fees 63,500
Total 492,500
It is estimated that in 6 years other companies will have developed improved processes, makin

May 1 Acquired both a license to use a special type of container and a distinctive trademark to be prin
in exchange for 6,000 shares of Pink’s no-par common stock selling for P50 per share.
The license is worth twice as much as the trademark, both of which may be used for 6 years.
July 1 Constructed a shed for P1,310,000 to house prototypes of experimental models to be develope
Dec. 31 Incurred salaries for an engineer and chemist involved in product development totaling P1,750

Based on the above and the result of your audit, determine the following:
1. Cost of patent
2. Cost of licenses
3. Cost of trademark
4. Carrying amount of Intangible Assets
5. Total amount resulting from the foregoing transactions that should be expensed when incurre
he following:
omplete organization of the corporation.

d hound out pamphlets & candy to create goodwill for the new enterprise.

mproved processes, making the Pink Corporation process obsolete.

nctive trademark to be printed on the container

for P50 per share.
may be used for 6 years.
ntal models to be developed in future research projects.
velopment totaling P1,750,000 in 2005.

be expensed when incurred

Notes on transactions:
2-Jan Organization cost accounted as period cost. (pre-operating cost) expense
15-Jan Promotional expense (internally generated GW). Goodwill is from business combination.
1-Apr Record the patent to be amortized using the useful life or legal life whichever is shorter.
1-May Use the rules on acquisition of property by issuing shares of stocks for initial measurement (use FV of shares issued).
Lumpum cost ratio is 2:1, license and trademark, respectively.
1-Jul Accounted as PPE (Building). Later, when used, subsequent depreciation as R&D expense.
31-Dec R&D expense because no statement on the achievement of all the 6 requirements for capitalization.

Cost of patent
Total legal fees and application & licensing fees 492,500.00

Cost of license
Number of shares issued 6,000.00
FV of shares 50.00
Total lumpsum cost 300,000.00
Multiplied by 2/3
Cost of license 200,000.00

Cost of trademark
Total lumpsum cost 300,000.00
Multiplied by 1/3
Cost of trademark 100,000.00

Carrying amount of intangible assets

Annual Amortization
Cost Useful life Amortization Expense
Patent 492,500.00 6 82,083.33 61,562.50
License 200,000.00 6 33,333.33 22,222.22
Trademark 100,000.00 6 16,666.67 11,111.11
Total carrying amount

Expensed as incurred
Organization cost 233,000.00 2-Jan
Promotional cost 15,000.00 15-Jan
R&D Expense 1,750,000.00 31-Dec
Total items that were expensed as incurred 1,998,000.00 (5)
ombination. expense
r is shorter. intangible asset
measurement (use FV of shares issued). amortization

R&D expense. PPE

ments for capitalization. expense

(1)

(2)

(3)

Carrying Amount
430,937.50
177,777.78
88,888.89
697,604.17 (4)

*silent on capitalization requirements, expense

On December 31, 2004, Silver Corporation acquired the following three intangible assets:
* A trademark for P300,000. The trademark has 7 years remaining legal life.
It is anticipated that the trademark will be renewed in the future, indefinitely, without problem.

* Goodwill for P1,500,000. The goodwill is associated with Silver’s Hayo Manufacturing reporting unit.

* A customer list for P220,000. By contract, Silver has exclusive use of the list for 5 years.
Because of market conditions, it is expected that the list will have economic value for just 3 years.

On December 31, 2005, before any adjusting entries for the year were made,
the following information was assembled about each of the intangible assets:

a) Because of a decline in the economy, the trademark is now expected to generate cash flows of ju
The useful life of trademark still extends beyond the foreseeable horizon.

b) The cash flows expected to be generated by the Hayo Manufacturing reporting unit is P250,000 p
Book values and fair values of the assets and liabilities of the Hayo Manufacturing reporting unit a
Book values Fair values
Identifiable assets P2,700,000 P3,000,000
Goodwill 1,500,000 ?
Liabilities 1,800,000 1,800,000

c) The cash flows expected to be generated by the customer list are P120,000 in 2006 and P80,000 i

Based on the above and the result of your audit, determine the following: (Assume that the appropriate dis
1) Total amortization for the year 2005
2) Impairment loss for the year 2005
3) Carrying value of Trademark as of December 31, 2005
4) Carrying value of Goodwill as of December 31, 2005
5) Carrying value of Customer list as of December 31, 2005
without problem.

cturing reporting unit.

lue for just 3 years.

To be used for testing for impairment

enerate cash flows of just P10,000 per year.

orting unit is P250,000 per year for the next 22 years.

acturing reporting unit are as follows: impairment by CGU

00 in 2006 and P80,000 in 2007.

that the appropriate discount rate for all items is 6%):

Notes:
a) Trademark is not subject to amortization because indefinite renewal but subject to impairment. Use value in use to test for i
b) Goodwill to be tested for impairment using cash generating unit (Hanyo Manufacturing). Use value in use since total FV of c
c) Customer list is subject to amortization. Test for impairement at year end using value in use.
d) Use 6% discount rate for value in use

Amortization for 2005

Cost of customer list 220,000.00
Useful life 3.00
Amortization expense 73,333.33 (1)

Impairment loss for 2005

1) Trademark
Annual cash flow 10,000.00
Divided by 6% PV factor of perpetuity is 1/rate, hence PV = CF ÷ rate.
Recoverable amount 166,666.67 With impairment because CA > RA

Carrying amount 300,000.00 equivalent to cost, no amortization

Less: Recoverable amount 166,666.67
Impairment loss -trademark 133,333.33

2) Goodwill
Identifiable asset 2,700,000.00
Goodwill 1,500,000.00
Less: Liabilities 1,800,000.00
Carrying amount of CGU 2,400,000.00

Annual cash flow 250,000.00

PV of ordinary annuity 22 years, 6% 12.0416
Recoverable amount 3,010,400.00
*No impairment because CA < RA.

3) Customer List
Cost 220,000.00
Less: Amortization 73,333.33
Carrying amount 146,666.67

Year Cashflow PV of 1, 6% Present Value

2006 120,000.00 0.9434 113,208.00
2007 80,000.00 0.8900 71,200.00
Recoverable amount 184,408.00
*Without impairment because CA < RA

Impairment loss 133,333.33 (2)

Carrying amount of trademark 12/31/2005

Cost 300,000.00
Less: Impairment 133,333.33
Carrying amount 166,666.67 (3)
*Also equal to the recoverable amount on 12/31/2004

Carrying amount of Goodwill 12/31/2004

Goowill carrying amount 1,500,000.00 (4)

Carrying amount of customer list

Cost 220,000.00
Less: Amortization 73,333.33
Carrying amount 146,666.67 (5)
ment. Use value in use to test for impairment.
Use value in use since total FV of cash generating unit is unknown.

is 1/rate, hence PV = CF ÷ rate.

use CA > RA

amortization