Intangible Assets

CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS
BATCH 93 – MAY 2023 CPALE
INTANGIBLE ASSETS
1. On January 1, 2020, an entity purchased a patent for a new consumer product for P4,500,000. At the time
of purchase, the patent had a remaining legal life of 15 years. However, the useful life of the patent was
only 10 years due to the competitive nature of the product. On December 31, 2023, the product was
permanently withdrawn from sale under governmental order because of potential health hazard in the
product. The amortization of the patent is recorded at the end of each year. What amount should be
charged against income in 2023?
a. 2,700,000
b. 3,150,000
c. 3,600,000
d. 450,000
2. On January 1, 2020, an entity purchased a patent for P7,140,000. The patent is being amortized over the
remaining legal life of 15 years expiring on January 1, 2025. During 2023, 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 patent on December 31, 2023?
a. 4,284,000
b. 4,896,000
c. 5,050,000
d. 5,236,000
3. An entity purchased another entity for P5,000,000 cash. The following carrying amount and fair value
were associated with the items acquired in this business combination:
Carrying amount Fair value
Accounts receivable 2,000,000 2,000,000
Inventory 1,000,000 500,000
Government contract 0 1,000,000
Equipment 400,000 500,000
Short-term loan payable (2,000,000) (2,000,000)
The fair value associated with the acquired government contract is not based on any legal or contractual
relationship. In addition, for obvious reason, there is no open market trading for this intangible.
What is the goodwill arising from the business combination?
a. 3,000,000
b. 3,600,000
c. 4,000,000
d. 0
4. An entity reported assets before goodwill and liabilities at fair value of P15,000,000 and P6,000,000,
respectively. Net earnings after elimination of unusual and infrequent items totaled P1,000,000 for 2020,
P1,150,000 for 2021, P1,500,000 for 2022, P1,250,000 for 2023 and P1,350,000 for 2024. The normal
rate of return is 10% on net assets at fair value.
1. What is the goodwill if excess earnings are capitalized at 8%?
a. 4,375,000
b. 2,150,000
c. 3,500,000
d. 5,300,000
2. What is the goodwill if average earnings are capitalized at 10%?
a. 6,500,000
b. 3,500,000
c. 6,625,000
d. 1,750,000
7023
Page 2
5. An entity incurred the following costs during the current year:
Modification to the formulation of a chemical product 135,000
Trouble-shooting in connection with breakdowns during commercial production 150,000
Design of tools, jigs, molds and dies involving new technology 170,000
Seasonal or other periodic design changes to existing product 185,000
Laboratory research aimed at discovery of new technology 215,000
What total amount should be reported as research and development expense for the current year?
a. 520,000
b. 470,000
c. 385,000
d. 335,000
6. During the current year, an entity incurred the following costs related to a new solar-powered car:
Salaries of laboratory employees researching how to build the new car 2,500,000
Legal fees for the patent application for the new car 200,000
Engineering follow-up during the early stages of commercial production 500,000
Marketing research to promote the new car 300,000
Design, testing and construction of prototype 4,000,000
Labor and materials incurred in producing a prototype 1,000,000
Equipment with useful life of 4 years used solely for development of the new car 1,500,000
What amount should be reported as research and development expense for the current year?
a. 9,500,000
b. 9,000,000
c. 7,875,000
d. 9,300,000
7. During the current year, an entity incurred the following costs to develop and produce a routine
low-risk computer software product:
Completion of detailed program design or working model 1,300,000
Cost incurred for coding and testing to establish technological feasibility 1,000,000
Other coding cost after establishment of technological feasibility 2,400,000
Other testing cost after establishment of technological feasibility 2,000,000
Cost of producing product masters for training materials 1,500,000
Duplication of computer software and training materials from product master 2,500,000
Packaging product 900,000
1. What amount should be capitalized initially as software cost?
a. 5,400,000
b. 3,700,000
c. 5,900,000
d. 6,900,000
2. What amount should be reported in inventory at year-end?
a. 2,500,000
b. 3,400,000
c. 4,000,000
d. 4,900,000
8. An entity began construction of a new facility in Mindanao. The costs incurred during the start-up
activities were production equipment P4,000,000, travel of salaried employees P500,000, license fees
P150,000, training of local employees for production and maintenance operations P1,500,000 and
advertising P800,000. What portion of the organization costs should be expensed?
a. 2,000,000
b. 2,150,000
c. 2,950,000
d. 6,000,000
End
7023

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CPA REVIEW SCHOOL OF THE PHILIPPINES

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