Reference no: EM132749195

Question: The following information pertains to CANNA Inc.'s intangible assets:

a. On January 1, 2020, CANNA signed an agreement to operate as a franchisee of Max & Caroline Food Chain, for an initial franchise fee of P15,000,000. Of this amount, P3,000,000 was paid when the agreement was signed and the balance is payable in 4 annual payment of P3,000,000 each, beginning January 1, 2021. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Discount rate used is 14%. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. CANNA's revenue from the franchise for 2020 was P1,900,000. CANNA estimates the useful life of the franchise to be 10 years.

b. CANNA incurred a total of P13,000,000 in 2019 for experimental and development costs in its laboratory to develop a patent which was granted on January 2, 2020. Legal fees and other costs associated with registration of the patent totaled P2,720,000. CANNA estimates that the useful life of the patent will be 8 years.

c. A trademark was purchased from Baker Inc. for P6,400,000 on July 1, 2017. CANNA estimates that the useful life of the trademark will be 20 years from the date of acquisition. Expenditures for successful litigation in defense of the trademark totaling P1,632,000 were paid on July 1, 2020.

1. How much is the carrying value of the franchise at December 31, 2020?

2. How much is the carrying value of the patent at December 31, 2020?

3. How much is the carrying value of the trademark at December 31, 2020?

4. How much are the total expenses resulting from the above transactions that would appear on CANNA's profit or loss statement for the year ended December 31, 2020?