1

P1/AP - INTANGIBLES

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. The following are items that could be included in the Intangible Assets:

1. Investment in a subsidiary company P1,500,000

2. Timberland 2,000,000
3. Cost of engineering activity required to advance the
design of a product to the manufacturing stage 120,000
4. Lease prepayments (6 months rent paid in advance) 60,000
5. Cost of equipment obtained under finance lease 700,000
6. Internally generated publishing title 230,000
7. Costs incurred in the formation of the corporation 90,000
8. Operating losses incurred in the start-up of the 560,000
business
9. Training costs incurred in start-up operations 80,000
10. Purchase of a franchise 1,200,000
11. Goodwill internally generated 300,000
12. Cost of testing in search for product alternatives 65,000
13. Goodwill acquired in the purchase of a business 640,000
14. Cost of developing a patent 140,000
15. Cost of purchasing a patent from an inventor 500,000
16. Legal costs incurred in securing a patent 70,000
17. Costs of a successful legal suit to protect the patent 230,000
18. Cost of conceptual formulation of possible product
alternatives 160,000
19. Cost of purchasing a copyright 900,000
20. Research and development costs 340,000
21. Long-term receivables 310,000
22. Cost of developing a trademark 61,000
23. Cost of purchasing a trademark 290,000
24. Computer software for a computer-controlled machine
that cannot operate without that specific software 130,000
25. Operating system of a computer 10,000

How much could be recognized as Intangible Assets?

a. P3,600,000 c. P5,830,000
b. P3,740,000 d. P3,530,000

2. Jeff Company developed a new machine for manufacturing volleyballs. Because the machine is
considered very valuable, the entity had it patented. The following expenditures were incurred in
developing and patenting the machine:
Purchase of special equipment to be used solely for development of 2, 250, 000
the new machine
Research salaries and fringe benefits for engineers and scientists 350, 000
Cost of testing prototype 3 00, 000
Legal cost of filing the patent 150, 000
Fees paid to government patent office 60, 000
Drawing required by patent office to be filed with patent application 40, 000

1. What amount should be capitalized as the cost of the patent?

a. 150, 000
b. 240, 000
c.210, 000
d.300, 000

2. What amount of research and development should be expensed in the current year?
a.2, 700, 000
b.2, 550, 000
c. 5, 600, 000
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d. 2, 250, 000

3. On July 1, 2015, Jeff purchased a patent from the inventor, who asked P1,100,000 for it. Jeff paid for
the patent as follows: cash, P400,000; issuance of 10,000 shares of its own ordinary shares, par P10
(market value, P20 per share); and a note payable due at the end of three years, face amount,
P500,000, noninterest-bearing. The current interest rate for this type of financing is 12 percent. Jeff
estimates the useful life of the patent to be ten years.
Carrying amount of patent as of December 31,
2015
a. P1,045,000 c. P860,310
b. P 955,900 d. P908,105

4. Ana Company acquired three patents in January 1, 2016

Cost Remaining Useful Life Remaining Legal Life

Patent X 2, 250, 000 15 9

Patent Y 3, 556, 000 6 10
Patent Z 2, 556, 000 5 16

In July 31, 2016 the entity successfully defended its right to Patent Z and incurred legal fees of
P 455, 000.
What total amount of amortization should be recognized for 2016?

a.1, 353, 867

b.2, 500, 000
c.2, 556, 000
d.3, 556, 000

5. Ana Company was granted a patent on January 1, 2013 and appropriately capitalized P450,000 of
related costs. The entity was amortizing the patent over the useful life of 15 years.
During 2016, the entity paid P150,000 in legal costs in successfully defending an attempted infringement
of the patent.
After the legal action was completed, the entity sold the patent to the plaintiff for P750,000. The policy is
to take no amortization in the year of disposal
What amount should be reported as gain from sale of patent in 2016?
a.150,000
b.240,000
c.270,000
d.390,000

6. On January 1, 2014 Ana Company, purchased a patent for P 9, 140, 000. The patent is being amortized
over the remaining legal life of 15 years expiring on January 1, 2030. During 2017 the entity determined
that the economic benefits of the patent would not last longer than ten years from the date of acquisition.

What is the carrying amount of the patent on December 31, 2017?

a. 6, 267, 428.57
b. 1, 828,000
c. 7, 312, 000
d. 9, 140, 000

7. On January 2, year 1, Arlene, Inc. purchased a patent for a new consumer product for 90,000. At the
time of purchase, the patent was valid for fifteen years; however, the patents useful life was estimated
to be only ten years due to the competitive nature of the product. On December 31, year 4, the product
was permanently withdrawn from sale under governmental order because of a potential health hazard in
the product.

What amount should Arlene charge against income during year 4, assuming amortization is recorded at
the end of each year?
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a. 9,000
b. 54,000
c. 63,000
d. 72,000

8. Arlene Company acquired copyright to the original recordings of a famous singer. The agreement with
the singer, allows the entity to record and rerecord the singer for a period of 5 years.

During the initial six-month period of the agreement, the singer is very sick and consequently cannot
record.

The studio time that was blocked by the entity had to be paid during the period the singer could not sing.

The following costs are incurred by the entity:

Cost of acquiring the copyright 5,000,000

Operating loss during the start up period (studio time lost) 1,000,000
Massive advertising campaign to launch the artist 1,500,000

What amount should be capitalized as cost of the copyright?

a. 5,000,000
b. 6,000,000
c. 7,500,000
d. 6,500,000

9. On January 1, 2016, Arlene signed an agreement to operate as franchisee of Clear Copy Service, Inc.
for an initial franchise of P680,000. Of this amount, P200,000 was paid when the agreement was signed
and the balance was payable in four annual payments of P120,000 each, beginning January 1, 2017.
The agreement provides that the down payment is not refundable and no future services are required of
the franchisor. The implicit rate for loan of this type is 14%. The agreement also provides the 5% of the
revenue from the franchise must be paid to the franchisor annually. Arlenes revenue from the franchise
for 2016 was P8,000,000. Arlene estimates the useful life of the franchise to be ten years.

Carrying amount of franchise as of December 31, 2016?

a. P549,644
b. P494,680
c. P538,733
d. P612,000

10. Arlene Company markets product to real state agents and to new homeowners, purchased a customers
list for P600,000 on January 2, 2015. Because of turnover among real-state agents and because new
homeowners gradually become established gradually established homeowners, the list is expected to
have economic value for only 4 years. The company uses the straight line method of amortization. In
January 2016, the customer list was tested for impairment as a result of substantial turndown in the
retail-estate market in the area. It is estimated that customer list will generate future cash flows of
P100,000 per year for the next three years and that the fair value (less cost to sell) of the customer list is
P240,000. The market rate of interest in this day is 8%.

What amount of impairment loss on customer list should Arlene Company recognize?
a. none c. 210,000
b. 192,300 d. 450,000

11. On January 1, 2014, Matet Company signed an eight-year lease for office space. The entity has the
option to renew the lease for an additional four-year period on or before January 1, 2021.

During January 2016, two years after occupying the leased premises, the entity made general
improvement to the premises costing P3,600,000 and having an estimated useful life of ten years.

On December 31, 2016, the entitys intention as to exercise of the renewal option is uncertain because
this will depend upon future office space requirement. A full year depreciation expense is taken for the
current year.
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What amount should be recorded as depreciation of leasehold improvement for the current year?
a. 300,000
b. 360,000
c. 450,000
d. 600,000

12. On January 1, 2014, Matet Company signed an eight-year lease for office space. The entity has an
option to renew the lease for an additional 8-year period on or before January 1, 2017.

During January 2016, the entity made substantial improvement to the warehouse. The cost of the
improvement was P540,000 with an estimated useful life of 15 years.

On December 31, 2016, the entity intended to exercise the renewal option. The entity has taken a full
year depreciation on this leasehold improvement for 2016.

On December 31, 2016, what is the carrying amount of the leasehold improvement?
a. 486,000
b. 504,000
c. 510,000
d. 513,000

13. During year 4, Matet Corp. incurred costs to develop and produce a routine, low-risk computer software
product, as follows:
Completion of detailed program design 13,000 Costs incurred for coding and testing to establish
technological feasibility 10,000 Other coding costs after establishment of technological feasibility 24,000
Other testing costs after establishment of technological feasibility 20,000 Costs of producing product
masters for training materials 15,000 Duplication of computer software and training materials from
product masters (1,000 units) 25,000 Packaging product (500 units) 9,000 77.

Q1. In Matets December 31, year 4 balance sheet, what amount should be reported in inventory?
a. 25,000
b. 34,000
c. 40,000
d. 49,000

Q2. In Matets December 31, year 4 balance sheet, what amount should be capitalized as software cost,
subject to amortization?
a. 54,000
b. 57,000
c. 59,000
d. 69,000

14. On December 31, year 3, Matet Co. had capitalized software costs of 600,000 with an economic life of
four years. Sales for year 4 were 10% of expected total sales of the software. At December 31, year 4,
the software had a net realizable value of 480,000. In its December 31, year 4 balance sheet, what
amount should Matet report as net capitalized cost of computer software?
a. 432,000
b. 450,000
c. 480,000
d. 540,000

15. An entity purchases a trademark and incurs the following costs in connection with the trademark:
One-time trademark purchase price 100,000 Nonrefundable VAT taxes 5,000 Training sales personnel
on the use of the new trademark 7,000 Research expenditures associated with the purchase of the new
trademark 24,000 Legal costs incurred to register the trademark 10,500 Salaries of the administrative
personnel 12,000 Applying IFRS and assuming that the trademark meets all of the applicable initial
asset recognition criteria, the entity should recognize an asset in the amount of
a. 100,000
b. 115,500
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c. 146,500
d. 158,500

16. Kelly Company is planning to sell the business to new interests. The cumulative earnings for the past
seven years amounted to P7, 450, 000 including the expropriation gain of P 450, 000. The fair value of
net assets of Kelly Company was P 9, 750, 000. The goodwill is determined by capitalizing average net
earnings at 10%.

What is the amount to be paid for goodwill?

a.250, 000
b.7, 450, 000
c.1, 000, 000
d.350, 000

17. Kelly Company acquired Small Company on January 1. As part of the acquisition, P500,000 in goodwill
was recognized; this goodwill was assigned to Kellys Internet Applications reporting unit. During the
year, the Internet Applications reporting units reported revenues of P800,000. Publictly traded company
with operations similar to those of the Internet Application unit had price-to-revenue ratios averaging
1.70. The fair values and book values of the asset and liabilities of the Internet Applications reporting
unit are as follows:
Book Values Fair Values
Identufiable assets P1,950,000 P1,900,000
Goodwill 500,000 ?
Liabilities 650,000 650,000

What is the amount of impairment loss on goodwill to be recognized?

a. none c. 390,000
b. 110,000 d. 500,000

18. Kelly Corp. incurred the following costs during year 4:

Design of tools, jigs, molds, and dies involving new technology 125,000 Modification of the formulation
of a process 160,000 Troubleshooting in connection with breakdowns during commercial production
100,000 Adaptation of an existing capability to a particular customers need as part of a continuing
commercial activity 110,000 In its year 4 income statement, Kelly should report research and
development expense of
a. 125,000
b. 160,000
c. 235,000
d. 285,000

19. Tris Co. purchased two machines of P250,000 each on January 2, 2016. The machines were put into
use immediately. Machine A has useful life of five years and can only be used in one reasearch project.
Machine B will be used for two years on a research and development project and then used by the
production division for an additional eight years. Tris uses straight line method of depreciation.

What should Tris include in 2016 research and development expense?

a. P 75,000 c. P375,000
b. P275,000 d. P500,000

20. You gathered the following information related to the Patents account of the Tris Cookie Corporation in
connection with your audit of the companys financial statements for the year 2016.

In 2015, Tris developed a new machine that reduces the time required to insert the fortunes into its
fortune cookies. Because the process is considered very valuable to the fortune cookie industry, Tris
patented the machine. The following expenses were incurred in developing and patenting the machine:

Research and development laboratory expenses P1,000,000

Metal used in the construction of the machine 320,000
Blueprints used to design the machine 128,000
Legal expenses to obtain patent 480,000
Wages paid for the employees work on the research,
development, and building of the machine (60% of
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the time was spent in actually building the

machine) 1,200,000
Expense of drawing required by the patent office to be
submitted with the patent application 68,000
Fees paid to the government patent office to process
application 100,000

During 2016, Tris paid P150,000 in legal fees to successfully defend the patent against an infringement
suit by Cookie Monster Corporation.

It is the companys policy to take full year amortization in the year of acquisition.

Based on the above and the result of your audit, determine the following:

1. Cost of patent
a. P580,000 c. P1,128,000
b. P648,000 d. P 798,000

2. Cost of machine
a. P1,236,000 c. P1,040,000
b. P1,648,000 d. P1,168,000

3. Amount that should charged to expense when incurred in connection with the development of the
patented machine
a. P1,480,000 c. P1,608,000
b. P1,000,000 d. P 0

4. Carrying amount of patent as of December 31, 2016

a. P522,000 c. P1,015,200
b. P583,200 d. P 837,900

21. In connection with your audit of the Ramil Corporations financial statements for the year 2016 you noted
the following items relative to the companys Intangible assets.

A patent was purchased from Maica Company for P4,000,000 on January 2, 2013. Ramil estimated
that the remaining useful life of the patent to be 10 years. The patent was carried in Maicas
accounting records at a carrying value of P4,000,000 when Maica sold it to Ramil.

During 2016, a franchise was purchased from Gloria Company for P960,000. In addition, 5% of the
revenue from the franchise must be paid to Gloria. Revenue from the franchise for 2016 was
P5,000,000. Ramil estimates the useful life of the franchise to be 10 years and takes full years
amortization in the year of purchase.

Ramil incurred research and development costs of P866,000 in 2016. Ramil estimates that these
costs will be recouped by December 31, 2019.

On January 1, 2016, Ramil, because of the recent events in the industry, estimates that the
remaining life of the patent purchased on January 2, 2013, is only 5 years from January 1, 2016.

Based on the above and the result of your audit, determine the following:

1. Amortization of patent for 2016

a. P900,000 c. P720,000
b. P800,000 d. P400,000

2. Carrying amount of patent as of December 31, 2016

a. P2,880,000 c. P2,700,000
b. P2,400,000 d. P3,200,000

3. Carrying amount of intangible assets as of December 31, 2016

a. P3,264,000 c. P3,564,000
b. P4,610,000 d. P3,744,000
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4. Total amount that should be charged against income in 2016

a. P2,112,000 c. P2,012,000
b. P1,066,000 d. P1,932,000

22. You noted the following items relative to the companys Intangible assets in connection with your audit of
the Maica Corporations financial statements for the year 2016.

On January 1, 2016, Maica signed an agreement to operate as franchisee of Clear Copy Service,
Inc. for an initial franchise of P680,000. Of this amount, P200,000 was paid when the agreement
was signed and the balance was payable in four annual payments of P120,000 each, beginning
January 1, 2017. The agreement provides that the down payment is not refundable and no future
services are required of the franchisor. The implicit rate for loan of this type is 14%. The agreement
also provides the 5% of the revenue from the franchise must be paid to the franchisor annually.
Maicas revenue from the franchise for 2016 was P8,000,000. Maica estimates that the useful life of
the franchise to be ten years.

Maica incurred P624,000 of experimental and development costs in its laboratory to develop a
patent which was granted on January 2, 2016. Legal fees and another costs associated with the
registration of the patent totaled P131,200. Maica estimates that the useful life of the patent will be
eight years.

A trademark was purchased from Gloria Company for P320,000 on July 1, 2013. Expenditures for
successful litigation in defense of the trademark totaling P80,000 were paid on July 1, 2016. Maica
estimates that the trademarks useful life will be indefinite.

Based on the above and the result of your audit, determine the following: (Round off present value
factors to 4 decimal places)

1. Total expenses related to franchise in 2016

a. P503,914 c. P448,950
b. P535,200 d. P454,964

2. Carrying amount of franchise as of December 31, 2016

a. P549,644 c. P538,733
b. P494,680 d. P612,000

3. Carrying amount of patent as of December 31, 2016

a. P131,200 c. P124,640
b. P114,800 d. P123,482

4. Carrying amount of trademark as of December 31, 2016

a. P320,000 c. P304,000
b. P288,000 d. P400,000

5. Carrying amount of intangible assets as of December 31, 2016

a. P1,046,800 c. P1,009,480
b. P 984,444 d. P 929,480

23. In connection with your audit of the Ramil Corporation, you noted the following transactions during 2016:

Jan. 2 Paid legal fees of P450,000 and stock certificate costs of

P249,000 to complete organization of the corporation.

15 Hired a clown to stand in front of the corporate office for 2

weeks and hound out pamphlets and candy to create
goodwill for the new entity. Clown cost, P30,000;
pamphlets and candy, P15,000.

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

Legal fees to obtain patent P1,287,000

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Patent application and licensing fees 190,500

Total P1,477,500

It is estimated that in 6 years other companies will have

developed improved processes, making the Ramil
Corporation process obsolete.

May 1 Acquired both a license to use a special type of container

and a distinctive trademark to be printed on the container
in exchange for 18,000 shares of Ramils no-par ordinary
shares 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 P3,930,000 to house prototypes of

experimental models to be developed in future research
projects.

Dec. 31 Incurred salaries for an engineer and chemist involved in

product development totaling P750,000 in 2016.

It is the companys policy to take full year amortization in the year of acquisition.

Based on the above and the result of your audit, determine the following:
1. Cost of patent
a. P1,477,500 c. P1,287,000
b. P 190,500 d. P 0

2. Cost of licenses
a. P450,000 c. P600,000
b. P300,000 d. P 0

3. Cost of trademark
a. P450,000 c. P600,000
b. P300,000 d. P 0

4. Carrying amount of Intangible Assets as of December 31, 2016

a. P2,031,250 c. P1,981,250
b. P2,026,250 d. P 0

5. Total amount resulting from the foregoing transactions that should be expensed when incurred
a. P2,971,500 c. P5,424,000
b. P1,494,000 d. P 0

24. On January 2, 2009, Herbert Company spent P480,000 to apply for and obtain a patent on a newly
developed product. The patent had an estimated useful life of 10 years. At the beginning of 2013, the
company spent P144,000 in successfully prosecuting an attempted patent infringement. At the
beginning of 2014, the company purchased for P280,000 a patent that was expected to prolong the life
of its original patent by 5 years. On July 1, 2017, a competitor obtained rights to a patent that made the
companys patent obsolete.

Based on the above and the result of your audit, determine the following:
1. Carrying amount of patent as of December 31, 2013
a. P360,000 c. P369,600
b. P240,000 d. P355,200

2. Amortization of patent in 2014

a. P64,000 c. P52,000
b. P64,960 d. P63,520

3. Carrying amount of patents as of December 31, 2016

a. P448,000 c. P444,640
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b. P454,720 d. P364,000

4. Loss on patent obsolescence in 2017

a. P338,000 c. P448,000
b. P416,000 d. P364,000

25. On December 31, 2015, Kaila Corporation acquired the following three intangible assets:

A trademark for P450,000. 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 P2,250,000. The goodwill is associated with Kailas Manufacturing reporting unit.

A customer list for P330,000. By contract, Kaila 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, 2016, 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 just
P15,000 per year. The useful life of trademark still extends beyond the foreseeable horizon.

b) The cash flows expected to be generated by the Laguna Manufacturing reporting unit is P375,000
per year for the next 22 years. Carrying amounts and fair values of the assets and liabilities of the
Laguna Manufacturing reporting unit are as follows:

Carrying amount Fair values

Identifiable assets P4,050,000 P4,500,000
Goodwill 2,250,000 ?
Liabilities 2,700,000 2,700,000

c) The cash flows expected to be generated by the customer list are P180,000 in 2017 and P120,000 in
2018.

Based on the above and the result of your audit, determine the following: (Assume that the appropriate
discount rate for all items is 6%. Round off present value factors to 4 decimal places):

1. Total amortization for the year 2016

a. P110,000 c. P212,273
b. P174,285 d. P130,285

2. Impairment loss for the year 2016

a. P135,714 c. P200,000
b. P269,376 d. P 0

3. Carrying amount of Trademark as of December 31, 2016

a. P450,000 c. P385,715
b. P250,000 d. P180,624

4. Carrying amount of Goodwill as of December 31, 2016

a. P2,250,000 c. P2,147,727
b. P2,137,500 d. P2,193,750

5. Carrying amount of Customer list as of December 31, 2016

a. P330,000 c. P220,000
b. P264,000 d. P 0

26. A license is acquired July 1, 2013, for P450,000; while it has a legal life of 15 years, due to rapidly
changing environment, management estimates a useful life of only 5 years. Straight-line amortization
will be used. At January 1, 2014, management estimated that the recoverable amount of the license is
only P135,000. Amortization will be taken over 3 years from that point.
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On January 1, 2016, due to the change in general economic situations, the license now has a fair value
of P540,000. The entity adopted the revaluation model to measure the license starting January 1, 2016.
The estimated remaining useful life is now believed to be 5 years.

Based on the above and the result of your audit, determine the following:

1. How much is the loss on impairment on January 1, 2014?

a. P270,000 c. P225,000
b. P300,000 d. P 0

2. How much can be recognized as gain on impairment recovery in 2016?

a. P270,000 c. P495,000
b. P180,000 d. P315,000

3. How much will be recognized as revaluation surplus on January 1, 2016?

a. P270,000 c. P495,000
b. P180,000 d. P315,000

27. An intangible asset costs P300,000 on January 1,2015. On January 1,2016, the asset was evaluated to
determine if it was impaired. As of January 1,2016, the asset was expected to generate future cash
flows of P25,000 per year (at the end of each year). The appropriate discount rate is 5%.

What total amount should be charged against income in 2016, assuming that the asset had a total useful
life of 10 years from date of acquisition?
a. P30,000
b. P92,304
c. P112,048
d. P122,304

What total amount should be charged against income in 2016 assuming that as of January 1,2015, the
asset was assumed to have an indefinite useful life and that as of January 1,2016, the remaining life
was still indefinite?
a. 0
b. P30,000
c. P92,304
d. P122,304

28. As the recently appointed auditor for Herbert Company, you have been asked by your senior in charge
to examine the entitys intangible assets. The trial balance submitted to you by Herbert listed the
following intangible assets account at December 31, 2016:

Patents P920,000
Trademarks 220,000
Franchise 900,000
Organization Costs 40,000
Goodwill 450,000

You obtained the following additional information:

(1) The patents were purchased by the company on January 1, 2014 for P1,000,000. At the date of
purchase, the patents were assessed to have an estimated useful life of 10 years, although the same
will expire on December 31, 2027. Amortization was made by the company for years 2014 and 2015,
based on 10 year life. In 2016, the company successfully defended the patents in an infringement suit,
the decision rendered by the court on December 28, 2016. Legal fees of P120,000 were incurred and
capitalized by the company in 2016.

(2) At December 31, 2016, the company assessed the economic benefits expected to be derived from
the patents. Because of new products and processes introduced in the market, it is believed that these
patents would provide annual cash inflow of P140,000 for the next five years. The companys
appropriate discount rate is 10%. Since there is no homogeneous price is not reliably determinable.
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(3) The balance of the Trademarks account represents its purchase price of P150,000 paid on January
1, 2014 and P70,000 of legal costs useful incurred during the current year 2016 for the cost of
infringement suit filed by the company against its competitor. The trademark was originally believed to
have an indefinite useful life, hence no amortization was taken up by the company for years 2014 and
2015. Because of new products introduced in the market the Trademark is now believed to benefit the
company up to the end of 2018.

(4) The Franchise account represents the total of the cash paid to acquire it on January 1, 2015,
P200,000 plus the P800,000 face value of the promissory note issued on the same date, reduced by
2015 amortization of P100,000. The P800,000 promissory note was non-interest bearing, payable in four
annual installments of P200,000 due every December 31 starting December 31, 2015. All installment
payments up to December 31, 2016 have been made on the due date. Implicit interest rate on the note
is 10% based on the equivalent cash price of the Franchise when purchased.

(5) The Organization Costs represents the unamortized portion of the costs of drafting, registering the
corporate charter and the costs incurred in shareholders' meeting during the process of incorporation,
reduced by amortization taken up in 2014 through 2015. The corporation opted to amortize the
organization costs over five years for tax purposes and applied the same treatment for accounting
purposes.

(6) The Goodwill account represents the following items:

P285,000 - Excess of the total consideration given over the fair value of the Net assets acquired in a
business combination consummated on January 1, 2015, reduced by amortization recorded during the
year 2015 (using straight-line). The company decided to amortize Goodwin over twenty years. There is
no indication of impairment as of December 31, 2016.

P165,000 - Cost of massive advertising campaign to launch a new product in January 2016. The Board
of Directors concluded that this product contributed significantly to the profitability of the entity.

No amortization has been recorded yet by the company on any of the above assets during the year
2016.

1. What is the carrying value of the patents at December 31, 2015?

a. P800,000 c. P1,000,000
b. P900,000 d. P1,120,000

2. What is the Impairment loss on patents for the year 2016

a. P133,333 c. P133,900
b. P 135,000 d. P135,955

3. Determine the correct cost of the Franchise.

a. P833,334 c.P845,670
b. P833,980 d.P860,980

4. Determine the Interest Expense for 2016 related to the Notes Payable.
a. P63,398 c. P49,738
b. P40,000 d. P16,602

5.What is the amount initially recognized as Goodwill on January 1, 2015?

a. P300,000 c. P165,000
b. P285,000 d P0

29. In line with Angel co.s expansion program, it has become interested in acquiring a plant in Mindanao to
handle many of its production functions in that area. One prospective seller is Akatsuki whose owners
have decided to sell their business if a proper settlement can be obtained. Akatsukis balance sheet
appear as follows:
Current assets P4,500,000 Current liabilities P2,400,000
Investments 1,500,000 Non-current liabilities 3,000,000
PPE (net) 12,000,000 Common stock 1,500,000
APIC 5,100,000
Retained Earnings 6,000,000
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Total Assets P18,000,000 Total equities P18,000,000

Angel has hired Kankuro Appraisal co. to determine the proper price to pay for Akatsuki. The appraisal
company finds that the investment have a fair value of P4,500,000 and the inventory is understated by
P2,400,000. All other assets and equities are properly stated. An examination of the companys income
for the last 4 years indicates that the net income had steadily increased. In 2016, the company had a net
operating income of P3,000,000, which is expected to increase 20% each year over the next 4 years.
Angel believes that a normal return in this type of business is 18% on net assets. The asset investment
in the Mindanao plant is expected to stay the same for the next 4 years.

According to Kankuro Appraisal Co., the fair value of Akatsuki can be estimated in many different ways.
Calculate an estimate of the value of Akatsuki, assuming that any goodwill will be computed as:

1.The capitalization of the average excess earnings of Akatsuki at 18%

a. P44,840,000
b. P36,000,000
c. P18,286,416
d. P26,840,000
2. The purchase of average excess earnings over the next 4 years
a. P24,364,800
b. P19,591,200
c. P30,960,000
d. P22,831,200
3.The capitalization of average excess earnings of Akatsuki at 24%
a. P31,500,000
b. P24,630,000
c. P18,381,888
d. P98,520,000
4. The present value of the average excess earnings over the next 4 years discounted at 15%. (The
present value of an ordinary annuity of 1 at 15% for 4 periods is 2.85498)
a. P31,792,979
b. P55,932,484
c. P22,542,844
d. P27750,135
5. If Angel were to pay P23,100,000 to purchase the assets and assume the liabilities of Akatsuki, how
much would be charged to goodwill?
a. P8,840,000
b. P6,364,800
c. P 0
d. P5,100,000

30. You are in the process of examining th intangible asset accounts of Angel Company and you obtained
the following information:

A patent was purchased from Pizza Hot Company for P2,000,000 on January 1, 2015. Angel Company
estimated the remaining useful life of the patent to be 10 years at the date of purchase. The patent was
carried on Pizza Hot Companys accounting records at a net carrying amount of P1,600,000 when Pizza
Hot sold it to Angel Company

During 2016, a franchise was purchased from Yellow Cob for P516,000. The terms of the payment are
as follows: P180,000 down payment on the date of the purchase, April 1,2016 and P336,000 one year
non-interest bearing note due on April 1, 2017. Implicit interest in this transaction is 12%. In addition, 5%
of revenue from the franchise must be paid to Yellow Cob. Revenue from the franchise for 2016
wasP2,500,000. Angel estimated on the date of purchase that the useful life of the machine was 10
years.

Angel incurred the following expenditures relating to research and development activities in 2016:
Materials P42,000
Equipment 100,000
Indirect Cost 102,000
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Angel estimates that these costs will be recouped by December 31,2019. The materials and equipment
purchased have no alternative future uses.

During 2016, because of recent events in the field, Angel estimates that the remaining life of the patent
purchased on January 1, 2015 is only 5 years from January 1,2016. The company takes a full years
amortization or depreciation on assets acquired during the year.

1. The amortization of the patent for the year 2016 is

a. P200,000
b. P288,000
c. P333,000
d. P360,000

2. Total research and development expense to be shown in the 2016 statement of comprehensive income
is
a. P244,000
b. P164,000
c. P144,000
d. P48,800

3. The carrying Value of the Franchise at December 31, 2016 is

a. P360,000
b. P370,000
c. P432,000
d. P444,000

4. The total amount that will be charged against revenue for 2016 related to the franchise is
a. P192,000
b. P182,000
c. P161,000
d. P200,000

5. The amortized cost of the Notes Payable on December 31, 2016 is

a. P300,000
b. P309,000
c. P327,000
d. P336,000