Solution

Acquisition cost - January 1, 2019 4,500,000.00

Amortization for 2019, 2021 and 2022 1,350,000.00 4,500,000/10*3
Carrying Amount - January 1, 2022 ₱3,150,000.00

Amortization of patent for 2022 450,000

Writeoff of unamortized cost 2,700,000
Total amount charged to expense in 2022 3,150,000

Patent (1,920,000 - 240,000) 1,680,000

Trademark (800,000 x 3/4) 600,000
Noncompetition agreement (800,000 x 1/4) 200,000
Total Intangible assets - January 1, 2022 2,480,000
Amortization of patent (1,680,000 / 6) 280,000
Amortization of noncompetition agreement (200,000 / 5) 40,000
Total amortization for 2022 320,000

Total Intangible assets - January 1, 2022 2,480,000

Amoritzation -320,000
Carrying amount - December 31, 2022 2,160,000

Purchase price 45,000,000

Book value of net assets 32,000,000
increase - PPE 7,500,000
decrease - other assets -5,000,000
decrease - liabilities 2,000,000
36,500,000
Goodwill 8,500,000

Salaries of Laboratory employees 2,500,000

Design, testing, and construction of prototype 4,000,000
Labor and materials incurred in producing a prototype 1,000,000
Equipment with a useful life of 4 years used solely for… 1,500,000
Total R&D 9,000,000
Other coding costs after establishment… 2,400,000
Other testing costs after establishment… 2,000,000
Costs of producing product masters… 1,500,000
Total cost to be capitalized as software cost 5,900,000

Duplication of computer software… 2,500,000

Packaging product 900,000
Total inventory 3,400,000
Travel of salaried employees 500,000
training for local employees 1,500,000
Total organization cost to be expense 2,000,000

Net assets, excluding goodwill 15M - 6M 9,000,000

Normal rate of return 10%

Past earnings for 5 years

2018 1,000,000
2019 1,150,000
2020 1,500,000
2021 1,250,000
2022 1,350,000
Total 6,250,000
Average eanings of the 5-year period 6,250,000 / 5 1,250,000

Average earnings 1,250,000

Normal earnings 900,000
Average excess earnings 350,000
Divide by capitalization rate 8%
Goodwill 4,375,000

What is the goodwill if excess earnings are capitalized at 10%

Average excess earnings 350,000
divide by capitalization rate 10%
Goodwill 3,500,000
Modification to the formulation of a chemical product 135,000
Design of tools, jigs, molds and dies 170,000
Laboratory research 215,000
Total research and development expense 520,000