SUMMARY OF PROBLEMS
PROBLEM NO. 1 Audit of recognition and measurement of intangible assets (including preparation of a
nerating unit
PROBLEM NO. 1 - Zerg Corporation
Requirement No. 1
1/2 Organization expenses 233,000
Intangible assets 233,000
Requirement No. 2
Cost
Patent 490,000
Licences 200,000
Trademark 100,000 790,000
Less amortization
Patent (P490,000/5) 98,000
Licences (P200,000/5) 40,000
Trademark (P100,000/5) 20,000 158,000
Carrying amount, 12/31/12 632,000
Requirement No. 3
Organization expenses (Jan. 2 transaction) 233,000
Advertising expense (Jan. 15 transaction) 15,000
R and D expense (Dec. 31 transaction) 1,750,000
Total 1,998,000
PROBLEM NO. 2 - TLL Cookie Corporation
Requirement No. 1
Metal used in the construction of the machine 480,000
Blueprints used to design the machine 192,000
Wages paid to the employees (P1,800,000 x 60%) 1,080,000
Cost of machine 1,752,000
Requirement No. 2
Research and development laboratory expenses 1,500,000
Wages paid to the employees (P1,800,000 x 40%) 720,000
R & D expense 2,220,000
Requirement No. 3
Legal expenses to obtain patent 720,000
Expense of drawing required by the patent office 102,000
Fees paid to the government patent office 150,000
Cost of patent 972,000
Less amortization up to 12/31/12 (P972,000 x 2/20) 97,200
Carrying amount of patent, 12/31/12 874,800
Requirement No. 2
Impairment loss
Copyright:
Carrying amount 400,000
Recoverable amount (P8,000/0.05) 160,000 240,000
Tradename:
Carrying amount 350,000
Recoverable amount (P15,000/0.05) 300,000 50,000
Goodwill:
Carrying amount of Anne Manufacturing unit 3,000,000
Recoverable amount (P200,000 x 14.0939) 2,818,780 181,220
Total impairment loss 471,220
Requirement No. 3
Original amount of Goodwill 900,000
Less impairment loss 181,220
Carrying amount of Goodwill, 12/31/12 718,780
Question No. 4 - A
Patent (P200,000 - P20,000) 180,000
Copyright (recoverable amount) 160,000
Tradename (recoverable amount) 300,000
Computer software (P100,000 - P50,000) 50,000
Carrying amount of other intangible assets, 12/31/12 690,000
PROBLEM NO. 4 - Probe Corporation
Requirement No. 1
Trademark* -
Goodwill* -
Customer list (P220,000/3) 73,333
Total amortization 73,333
*The useful life is indefinite, so no amortization expense is recognized.
Requirement No. 2
Impairment loss
Trademark:
Carrying amount 300,000
Recoverable amount (P10,000/0.06) 166,667 133,333
Goodwill*:
Carrying amount of Manufacturing unit
(P2,700,000 + P1,500,000 - P1,800,000) 2,400,000
Recoverable amount (P250,000 x 12.0416) 3,010,400 -
Customer list
Carrying amount (P220,000 - P73,333) 146,667
Recoverable amount:
2013: (P120,000 x 0.9434) 113,208
2014: (P80,000 x 0.8900) 71,200 184,408 -
Total impairment loss 133,333
*Since goodwill does not generate cash flows independently from other assets or group
of assets, the recoverable amount of goodwill as an individual asset cannot be
determined. Therefore, the recoverable amount is determined for the cash
generating unit to which goodwill belongs.
Requirement No. 3
Cost 300,000
Less impairment loss 133,333
Carrying amount of Trademark, 12/31/12 166,667
Requirement No. 4
Since goodwill is not amortized and is not impaired as of 12/31/12,
the carrying amount is P1,500,000.
Requirement No. 5
Cost 220,000
Less amortization for 2012 73,333
Carrying amount of Customer List, 12/31/12 146,667
PROBLEM NO. 5 - Five Company
Requirement No. 1
Down payment 200,000
Add PV of installment payments (P120,000 x 2.9137) 349,644
Cost of franchise 549,644
2012 amortization (P549,644/10) (54,964)
Carrying amount of franchise, 12/31/12 494,680 eboy
Requirement No. 2
Cash paid 400,000
Fair value of shares issued (10,000 x P20) 200,000
PV of note payable (P500,000 x 0.7118) 355,900
Cost of patent 955,900
2012 amortization (P955,900/10 x 6/12) (47,795)
Carrying amount of patent, 12/31/12 908,105
Requirement No. 3
Franchise related expenses
Amortization of franchise (see no. 1) 54,964
Periodic franchise fee (P8,000,000 x .05) 400,000
Interest expense (P349,644 x .14) 48,950 503,914
Patent related expenses:
Amortization (see no. 2) 47,795
Interest expense (P355,900 x .12 x 6/12) 21,354 69,149
Trademark related expense (Impairment loss)
Carrying amount 1,200,000
Recoverable amount:
Outcome 1 (P40,000/.05 x .7) 560,000
Outcome 2 (P80,000/.05 x .3) 480,000
1,040,000 160,000
Total expenses - 2012 733,063
PROBLEM NO. 6 - Rodeo Corporation
CA after
Carrying Impairment CA after Impairment impairment
Assets amount allocated impairment reallocation reallocation
1 Goodwill 200,000 (200,000) - - -
2 Operating license 1,200,000 (333,333) 866,667 33,333 900,000
3 Property-train stations a 300,000 (83,333) 216,667 (16,667) 200,000
4 Rail tracks and coaches 300,000 (83,333) 216,667 (16,667) 200,000
5 Steam engines (2) 1,000,000 (500,000) 500,000 - 500,000
3,000,000 (1,200,000) 1,800,000 1,800,000
Alternative solution:
Carrying Impairment CA after
Assets amount allocated impairment
1 Goodwill 200,000 (200,000) -
2 Operating license 1,200,000 (300,000) 900,000
3 Property-train stations a 300,000 (100,000) 200,000
4 Rail tracks and coaches 300,000 (100,000) 200,000
5 Steam engines (2) 1,000,000 (500,000) 500,000
3,000,000 (1,200,000) 1,800,000
Requirement No. 2
Reversal of impairment loss on impaired assets:
Inventory - Sold already. No more reversal.
Goodwill - Not allowed.
Buildings - Allowed subject to limit.
Machinery - Allowed subject to limit.
CA Allocation* CA after
Buildings 165,400 11,478 176,878
Machinery 122,800 8,522 131,322
288,200 20,000 308,200 Shiela
al would be
PROBLEM NO. 8 - Protoss Corporation
Requirement No. 1 2%
Carrying amount, 1/1/10 (P250,000 x 4.5/5) 225,000
Recoverable amount 75,000
Impairment loss 150,000 Donna
Requirement No. 2
Fair value, 1/1/12 300,000
Carrying amount, 1/1/12 (P75,000 x 1/3) 25,000
Revaluation increase 275,000
Requirement No. 3
Revaluation increase 275,000
Gain on impairment recovery (100,000)
Revaluation surplus, 1/1/12 175,000
Realized - 2012 (P175,000/5) (35,000)
Revaluation surplus, 12/31/12 140,000 Dimaano
Requirement No. 4
Carrying amount (Fair value), 1/1/12 300,000
Amortization - 2012 (P300,000/5) (60,000)
Carrying amount, 12/31/12 240,000 Judie De leon
page 11 of 14
PROBLEM NO. 9 - Naga Corporation
Requirement No. 1
Present of note received (P5,000,000 x 0.675) 3,375,000
Less carrying amount of patent, 5/1/12:
Carrying amount, 1/1/11 2,450,000
Amortization up to 5/1/12 (P3,150,000/15x4/12) (70,000) 2,380,000
Gain on sale of patent 995,000
Requirement No. 2
Note receivable from sale of patent (P3,375,000 x 14% x 8/12) 315,000
Installment contract:
1/1 to 3/31 (P7,200,000 x 13% x 3/12) 234,000
4/1 to 12/31 (P5,400,000 x 13% x 9/12) 526,500 760,500
Total interest income - 2012 1,075,500
Requirement No. 3
Installment contract receivable, 12/31/11 7,200,000
Less principal payment received, 3/31/12 1,800,000
Balance, 12/31/12 5,400,000
Less principal payment to be received, 3/31/13 1,800,000
Noncurrent portion 3,600,000 shiela
Requirement No. 4
CA - NR from sale of patent, 5/1/12 3,375,000
Amortization of discount, 5/1/ to 12/31 (P3,375,000 x 14% x 8/1 315,000
CA - NR from sale of patent, 12/31/12 3,690,000 dimaano
Requirement No. 5
Acquisition cost 18,800,000
Dividends received (750,000 x 2) (1,500,000)
Share of profit (P7,040,000 x 25%) 1,760,000
CA - Investment in Pure Corp., 12/31/12 19,060,000 antiquera
PROBLEM NO. 10 - GDL, Inc.
Requirement No. 1
Patent amortization (P1,680,000/6) 280,000
Trademark -
Noncompetition agreement (P2,000,000/5) 400,000
Total amortization 680,000
Requirement No. 2
Patent (P1,680,000 - P280,000) 1,400,000
Trademark (P8,000,000 x 3/4) 6,000,000
Noncompetition agreement (P2,000,000 - P400,000) 1,600,000
Carrying amount of intangible assets, 12/31/12 9,000,000
Requirement No. 3
Deferred tax asset, 12/31/11 360,000
Decrease in deferred tax asset:
Decrease in unearned rent (P200,000 x 35%) (70,000)
Increase in warranty liability (P150,000 x 35 52,500 (17,500)
Deferred tax asset, 12/31/12 342,500
PROBLEM NO. 11 - Theory
1 D
2 C
3 A
4 B
5 A
6 A
7 D
8 B