ACC3- FINANCIAL ACCOUNTING AND REPORTING I

Quiz 6 - Intangible Assets

Part I: Theoretical (1.5 PTS)

1. The following are characteristics of an Intangible Asset except:

A. Economic control
B. Identifiability
C. Salability and Marketability
D. Future Economic benefits

2. Which of the following statements correctly describes Intangible Assets?

A. Identifiable monetary asset without physical substance.
B. Identifiable non-monetary asset without physical substance.
C. Identifiable monetary and non-monetary asset without physical substance.
D. Identifiable monetary and non-monetary asset with physical substance.

3. Which of the following correct describes identifiability of intangible assets?

a. It is separate from entity.
b. It is arising from legal or contractual rights.
c. Either separable or arising from contractual or legal rights.
d. Neither separable nor arising from contractual nor legal rights.

4. It is an exclusive right or protection granted to an author or creator of any literary, musical or

artistic work.
A. Franchise
B. Trademark
C. Computer Software
D. Copyright

5. It is an exclusive legal right granted by the government as protection against others from
copying, stealing, using selling or distributing an invention without permission from the
inventor.
A. Franchise
B. Trademark
C. Patents
D. Computer Software

6. These are words, symbols, taglines or other devices used in trade to distinguish it from
products or services.
A. Franchise
B. Trademark

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 C. Computer Software
D. Copyright

7. It is granting by one party to another to operate outlets, use concepts, property, trademarks
and trade names and process or production of goods and services:
A. Franchise
B. Trademark
C. Computer Software
D. Copyright

8. Which of the following is not considered as Research and Development Cost?

A. Designing, constructing, and testing the prototypes and models.
B. Design or formulation of product or process alternatives.
C. Research to acquire new knowledge and processes.
D. Routinary design of tools, jigs, molds, and dies.

9. Which of the following Research and Development Costs should be capitalized and amortized?
A. Salaries and benefits of personnel for research and development.
B. Research findings from another entity to help in current and future research project in
process.
C. Research and development for general laboratory building.
D. Inventory used for research projects.
E.
10. Which of the following would be considered research and development?
A. Prototype construction costs.
B. Routinary effort to improve products and services.
C. Alteration of existing production line.
D. Marketing research to promote new products and services.

11. This is the systematic allocation of the amortizable amount of an intangible asset over its
useful life:
A. Depreciation
B. Interest Expense
C. Fair Value
D. Amortization

12. Internally generated intangible assets include the following except:

A. Materials used in generating intangible asset.
B. Fees to register in the Philippine Patent Office.
C. Costs of salaries of personnel in generating the asset.
D. Training costs of employees to operate the potential asset.

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13. The basis of amortization will be:
A. Shorter between useful life and legal life.
B. Longer between useful life and legal life.
C. Legal life
D. Useful life

14. After initial recognition, an intangible asset will be subsequently measured using:
A. Cost model
B. Revaluation model
C. Either cost model or revaluation model
D. Neither cost model nor revaluation model

15. Patents will be amortized over:

A. Legal life of 20 years.
B. Useful life.
C. Legal life and useful life whichever is shorter.
D. Legal life and useful life whichever is longer.

16. ABC Company successfully registered with the Philippine Patent Office in the beginning of
2017 for its asset. On July 01, 2017, a competitor recently manufactured an asset that was
similar to the patented asset of Banana. The company filed lawsuit against the competitor and
was successful in defending the patented asset. How will the ABC Company treat the costs of
litigation in defending the patent?
A. Expense for the period.
B. Capitalized as cost of the asset and depreciated over the useful life.
C. Capitalized as cost of the patent and amortized over the useful life or legal life whichever is
lower.
D. Ignored.

17. DEF Incorporated the net assets of GHI Company. The fair value of the net assets of GHI
Company amounted to P15,000,000. DEF Incorporated acquired the net assets of GHI
Company for P16,000,000. How should DEF Incorporated account for the excess of the
purchase price over the net assets of GHI Company?
A. Reported as gain for the period.
B. Reported as other comprehensive income and realized on a piecemeal basis.
C. Reported as Intangible Asset and amortized over the useful life or legal life whichever is
lower.
D. Reported as Goodwill.

18. Which of the following is true regarding impairment of Goodwill and reveals of impairment?

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 A. Impairment of Goodwill is recognized in the books and as well as subsequent reversal of
impairment.
B. Impairment of Goodwill is not recognized in the books since goodwill does not have any
useful life and not amortized.
C. Impairment of Goodwill is recognized in the books and no reversal of impairment.
D. Impairment is not recognized.

19. Computer software shall be amortized:

A. Uniformly over the useful life.
B. Using the ratio of current revenue over total expected revenue for the product.
C. Using SLM.
D. Using SLM or ratio of current revenue over total expected revenue for the product
whichever is greater.

20. According to SIC 32, Website Development Costs:

A. Included as part of Intangible Assets.
B. Included as part of expense for the period.
C. Included as part of Intangible Assets and amortized.
D. Included as part of expense for the period of Intangible Assets at the discretion of the
company.

Part II: Problem Solving (2.5 PTS.)

PROBLEM A

On January 01, 2017 ABC incorporated properly classified the cost of P1,500,000 as its Computer
Software. ABC had estimated its useful life to be 5 years with no residual value. Also, ABC estimated that
the total sales expected from the Computer Software was 15,000,000 over its useful life as follows: 1wt
year-P3,750,000; 2nd year P4,500,000; 3rd year - P750,000; 4th year - P2,250,000; and 5th year -
P3,750,000.

1. How much is the amortization expense of the Computer Software for 2017?
A. 300,000 C. 450,000
B. 375,000 D. 75,000

2. Assuming that the amount of future revenue form the software cannot be reliably
determined, how much is the amortization expense of the Computer Software for 2017?
A. 300,000 C. 450,000
B. 375,000 D. 75,000

PROBLEM B

In 2017, DEF Company incurred the following expenditures:

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 Research and Development services performed by GHI Company for DEF Company 45,500,000

Research and Development services performed by DEF Company to GHI Company 7,500,000

Expenditures for the formulation of an alternative process 4,500,000

Building to be used for research activities, with useful life f 10 years 15,000,000

Design of tools, jigs, and molds 750,000

Prototype testing 750,000

3. How much is the Research and Development Cost?

A. 19,500,000 C. 15, 000,000
B. 33,000,000 D. 12, 000,000

PROBLEM C

On January 01, 2017, GHI Company purchased a land with mineral deposits. It was acquired by the
company at a purchase price of P21,000.000. Experts estimate that the company can extract 2,250,000
tons of mineral deposits and further expects that the company can extract 37,500 tons per month.

The company also purchased a new equipment to be used in mining activities on July 01, 2017 at a
purchase price of P12,000,000 with a useful life of 10 years. The company estimated the residual value
to be P7500,000 at the end of its useful life.

4. How much is the depletion expense per ton?

A. 10.33 C. 11.33
B. 9.33 D. 12.33

5. How much is the depletion expense for 2017?

A. 4,198,500 C. 5,098,500
B. 4,648,500 D. 5,548,500

6. How much is the depreciation expense for 2017?

A. 1,200,000 C. 2,400,000
B. 1,125,000 D. 2,250,000

7. How much is the carrying value of the equipment on December 31, 2017?
A. 10,800,000 C. 10,875,000
B. 9,750,000 D. 9,600,000

PROBLEM D

On January 2, 2017, MNO Company acquired copyrights to the original recordings of Eli Panganiban, a
famous international recording artist. The agreement with the singer allows the company to record and

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rerecord the songs of the singer for a period of five years. During the initial six-month period of the
agreement, the singer was very sick and consequently cannot record. The studio time that was blocked
by the company had to be paid even during the period the singer could not sing. The company incurred
the following costs:

Legal cost of acquiring the copyrights 15,000,000

Documentation expenses related to the copyright acquisition 1,500,000

Operational loss 3,000,000

Massive advertising campaign to launch the artist 1,500,000

8. How much should be initially recognized as Copyright?

A. 21,000,000 C. 15,000,000
B. 19,500,000 D. 16,500,000

9. How much should be expensed in 2017, excluding the amortization expense?

A. 4,500,000 C. 7,500,000
B. 6,000,000 D. 4,500,000

10. What is the carrying of the Copyright at the end of 2017?

A. 16,800,000 C. 12,000,000
B. 15,600,000 D. 13,200,000

PROBLEM E

PQR Company is engaged in developing computer software for small business at home computer
market. Most of the computer programmers are involved in developmental work designed to produce
software that will perform fairly specific tasks in a user-friendly manner. Extensive testing of the working
model is performed before it is released to production for preparation of masters and further testing. As
s a result of careful preparation, PQR Company has produced several products that have been very
successful in the market place. The following costs were incurred during 2017:

Salaries and wages of programmers doing research 660,000

Expenses related to projects prior to establishment of technical feasibiity 495,000
Cost of completing the detailed program design 750,000
Cost of coding the product master copy after technical feasibility has been established. 142,500
Cost of testing the product master copy after technical feasibility has been established. 157,500
Cost to produce and prepare software for sale 337,500

Additional data for 2016:

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Sales of products for the year 750,000
Total expected sales for the five-year useful life of the intangible asset 3, 750,000

Assume the company follows the policy of full year amortization in the year of acquisition of intangible
assets.

11. How much is to be capitalized as software development cost?

A. 1,050,000 C. 300,000
B. 1,387,500 D. 637,500

12. How much is to be recorded as Research and Development Expense in 2016?

A. 2,047,500 C. 1,237,500
B. 1,905,000 D. 2,542,500

13. How much is the amortization expense for Intangible Asset?

A. 60,000 C. 277,500
B. 210,000 D. 318,750

PROBLEM F

On January 01, 2017, STU Company incurred P375,000 to obtain for its special product. The patent had a
legal life of 15 ears but based on the assessment of the company and due to rapid changes in
technology, the patents useful were estimated to be only 5 years.

At the beginning of the year 2019, the company incurred legal costs of P45,000 to successfully defend
the patent against an attempted infringement.

On January 01, 2021, the company incurred P150,000 which was expected to prolong the useful life of
the company by an additional 5 years. During September 01, 2022, the company incurred legal cost of
P150,000 but was unable to defend the patent against a competitor and thus made the patent obsolete.

14. How much should be expensed for the year 2017?

A. 375,000 C. 0
B. 25,000 D. 75,000

15. How much should be expensed for the year 2019?

A. 375,000 C. 45,000
B. 70,000 D. 120,000

16. How much should be expensed for the year 2021?

A. 37,500 C. 75,000

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 B. 45,000 D. 0

PROBLEM G

VWX Corporation considers its Department A as cash generating unit. On December 31, 2017, the
goodwill account of Department A has a balance of P600,000. The identifiable assets of the cash
generating unit of Department A are as follows:

Land 4,000,000
Building 3,000,000
Franchise 2,000,000
Patents 1,000,000

17. Assuming that the recoverable amount of the cash generating unit is P10,100,000, what is the
Impairment Loss recognized in 2017?

A. 500,000 C. 3,500,000
B. 100,000 D. 600,000

PROBLEM H

On January 1, 2017, Francisco enterprises, Inc. purchased from Jollibee Foods Corporation to operate a
Jollibee outlet near LRT 2 Legarda Station. The franchise fee amounted to P5,000. The agreement
indicated that Francisco is required to pay a cash down payment of P1,000,000 and the rest of balance
of P4,000,000 to be covered by issuing or promisory note. The note is payable in 4 equal annual
payments starting December 31, 2017.The prevailing market interest rate at the time of issuance was
7%.

The agreement also indicated that Francisco is required to pay continuing franchise fees of 10% of the
profit for the total franchise contract period of 10 years.

For 2017, the company reported profit of P15,000,000.

PVF of P1 single payment using 7% for periods - .7629

PVF of P1 ordinary annuity using 7% for 4 periods - 3.3872

18. What amount shall be recognized as Franchise on January 01, 2017?

A. 4,150,100 C. 3,814,500
B. 4,387,200 D. 0

19. What is the amortization expense for the ear 2017?

A. 438,720 C. 381,400
B. 415,000 D. 0

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PROBLEM I

On January 1, 2017, Gonzales Company had a patent which cost P4500,000 and is 40% amortized. It was
revalued on this date and found to have sound value of P4,050,000. Gonzales Company also determined
that the patent had a remaining useful life of six years from January 1, 2017. The company restates its
accumulated amortization proportionately with the change in the gross carrying amount of the asset
and transfers a portion of the revaluation surplus to retained earnings as the asset is being used by the
entity.

20. How much is to be recorded as revaluation surplus on January 1, 2017?

A. 1,050,000 C. 4,080,000
B. 2,250,000 D. 1, 350,000

21. How much is the amortization expense for the year 2017?

A. 925,000 C. 675,000
B. 1,125,000 D. 750,000

22. How much is the realization of the revolution surplus for the year 2017?

A. 225,000 C. 200,000
B. 350,000 D. 0

PROBLEM J

Jacobo Company maintains 3 patents in its books acquired on January 01, 2017, as follows:

Cost Remaining Useful Life Remaining Legal Life

Patent A 1,500,000 10 15
Patent B 3,450,000 11 10
Patent C 4,500,000 9 19

On July 01, 2017, the company successfully defended Patent A against an attempted infringement
costing P150,000.

On August 31, 2017, the company successfully defended Patent B against an attempted infringement
costing P225,000.

On Septemebr 30,2017, the company was unsuccessful in defending Patent C against a competitor
costing the company P750,000. Patent C now is considered obsolete.

23. How much is the amortization for the year 2017?

A. 870,000 C. 495,000

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 B. 995,000 D. 1,145,000

24. How much should be expensed for the year 2017?

A. 1,995,000 C. 5,370,000
B. 6,120,000 D. 4,620,000

PROBLEM K

Lapinid Incorporated manufactures toys for children. On January 01, 2017, the company acquired a
patent for one of its equipment costing P15,000,000. The management expects that the patent is usable
for 10 years.

On May 31, 2017, the company was able to defend its patent against a competitor for an attempted
infringement costing the company P450,000.

On January 01, 2019, the company acquired a new patent costing P7,500,000. The company
management believes that it will extend the useful life of the patent by 7 years.

On January 01, 2021, because of a recently passed law, the patent now is considered obsolete and
worthless.

25. What is the amortization expense for the year 2017?

A. 1,500,000 C. 1,300,000
B. 1,400.000 D. 1,000,000

26. What is carrying value of the patent on December 31, 2018?

A. 14,000,000 C. 13,000,000
B. 12,000,000 D. 10,000,000

27. What is the amortization for the year 2019?

A. 1,200,000 C. 1,500,000
B. 1,300,000 D. 1,600,000

28. What is the loss from patent obsolescent for the year 2021?
A. 15,000,000 C. 18,100,000
B. 17,000,000 D. 16,900,000

-END OF EXAMINATION-

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