Intangible Asset

Assignment

1. On January 1, 20x1, Roger acquired a patent from a competitor. The competitor is the original
owner of the patent and has held the patent for seven years. The purchase price is Php 1,200,000.
Roger Co paid a 20% downpayment upon signing the contract and issued a noninterest bearing
note for the balance. The note is payable in 5 equal annual installments starting on Dec 31, 20x1.
The patent has a remaining useful life of 15 years.

a. How much is the total initial cost of the patent?

b. How much is the accumulated amortization that will be disclosed in Roger’s December 31,
20x2 financial statements?

2. Roger incurred the following expenditures in developing a patent: legal fees for patent
registration, Php 700,000; tests to perfect the use of the patent for production processes, Php
60,000; research costs in the research laboratory, Php 210,000; and depreciation on equipment
(that has alternative future uses) used in developing the patent, Php 40,000. The patent has an
estimated useful life of 25 years. How much is the annual amortization?

3. Roger Co. incurred the following costs during 20x1:

Engineering follow through in an early phase of production 20,000

Conceptual formulation and design on possible product or process alternatives 100,000
Periodic design changes to existing products 30,000
Radical modification of the design of a product or process 80,000

4. Roger incurred the following costs during 20x1:

Routine design changes to existing products 92,500

Design of tools, jigs, molds and dies involving new technology 85,000
Costs of quality control during commercial production 75,000
Modification to the initial design of a prototype 67,500
Laboratory research aimed at discovery of new technology 107,500
Costs of changes in the design of the packaging of an existing product 56,000
Amortization of other intangible assets used in R&D activities for new inventions 30,000

5. Roger incurred the following costs in 20x1:

Design, construction and testing of preproduction prototypes and models 240,000
Research and development services performed by Ming for Roger` 180,000
Testing in search for new products or process alternatives 210,000

How much is total R&D?

6. Roger developed a trademark to distinguish its products from those of its competitors. Through
advertising and other means, the company is seeking to establish significant product identification
to increase future sales. The similarity between the trademark costs and other intangible and
operating costs has caused some confusion over proper accounting. The following items are being
treated as part of the cost of the trademark:

Marketing research to study consumer tastes 400,000

Design cost of trademark 1,500,000
Legal fees of registering trademark 150,000
Advertising to establish recognition of trademark 200,000
Registration fee with Patent Office 50,000

Through renewals, the trademark is expected to have an unlimited life.

How much is capitalized as trademark?

7. In January 20x1, Roger purchased a patent for a new customer product for Php 1,200,000. At
the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the
product, however, the patent was estimated to have a useful life of only ten years. During 20x6 the
product was permanently removed from the market under governmental order because of a
potential health hazard present in the product. What amount should Roger charge to expense
during 20x6, assuming amortization is recorded at the end of each year?

8. Roger acquired an intangible asset in exchange for 10,000 ordinary shares with par value of
Php10 per share. The quoted market price on the stock exchange was Php 15 per share. The
intangible asset has a fair value of Php 140,000. In accordance with the PFRSs, at what amount
should the intangible asset be initially recognized?

9. At yearend, Roger purchased for Php 30 per share all 200,000 of Ming Company’s outstanding
ordinary shares. On this date, the carrying amount of net assets of the acquire was Php 5,000,000.
The fair value of identifiable assets on this date was Php 400,000 in excess of their carrying
amount.

What amount of goodwill should be reported?

10. During 20x3, Roger spent Php 176,000 on research and development cost for an invention. The
invention was patented on January 2, 20x4 at a nominal cost that was expensed 20x4. The patent
had a legal life of 20 years and an estimated useful life of 8 years. In January 20x8, Roger paid Php
16,000 for legal fees in a successful defense of the patent. How much is the amortization expense
in 20x8?

11. The following is information related to the development of a particular software package which
was estimated to have a three-year useful life:

Development costs prior to reaching technological feasibility 400

Development cost after reaching technological feasibility 600
Cost of duplicating salable product 900*
Estimated revenues over 3 year total product life 30,000
Revenue in the first year of product life 15,000

*This represents the entire inventory expected to be sold over the 3 year period.

a. How much is R&D expense?

b. How much is amortization expense?
c. How much is cost of goods sold?
d. What is the total expense related to this software package to be recognized in its first
year?

12. In 2008, Roger developed a new product that will be marketed in 2011. In connection, with the
development of this product, the following costs were incurred in 2008:

Research and development department cost 95,000

Materials and supplies consumed in research 25,000
Compensation paid to research consultants 30,000

It is anticipated that these costs will be recovered in 2011. What is the amount of research and
development costs that Roger should record in 2008 as expense?

MIAW