Reference no: EM132706763

Questions -

Q1. During the current year, Muller Company incurred costs to develop and produce a routine, low-risk computer software. Costs incurred for coding and testing to establish technological feasibility 2,000,000; Other coding costs after establishment of technological feasibility 4,800,000; 4,000,000; Costs of producing product masters for training materials 3,000,000; Duplication of computer software and training materials from product masters 5,000,000; Completion of detailed program design 2,600,000; Other testing costs after establishment of technological feasibility; Packaging product 1,000,000. The computer software which is not for sale can be used for five years. What is the annual amortization, if any, of the Intangible asset?

Q2. STU Company spent P18,000,000 on a new software package that is to be used only for internal use. The amount was spent after the application development stage. The economic life of the product is expected to be three years. The equipment, on which the new software package is to be used, is being depreciated over five years. TUS Company spent P24,000,000 during the current year developing a new software package. Of this amount, P8,000,000 was spent before it was at the application development stage and the package was only to be used internally. The package was completed during the year and is expected to have a four-year useful life. The entity has a policy of taking a full year amortization in the first year. After the development stage, an amount of P100,000 was spent on training employees to use the program. UST Company incurred the following research and development costs during the current year: Materials used 2,000,000; Equipment 4,000,000; Personnel 2,400,000; Indirect costs 3,000,000. These costs relate to a product that will be marketed next year. It is estimated that these costs will be recouped after two years but the process has not achieved economic viability. The equipment has no alternative future use. What is the total amount of R&D expense in the current year for the three companies?

Q3. In relation to the preceding number (item number 2), what is the total amortization expense in the current year for the three companies?

Q4. Derek Louie owns four companies : I. V Company incurred the following costs during the current year: Laboratory research aimed at discovery of new knowledge 400,000; Cost of testing prototype (economic viability not achieved) 100,000; Quality control during commercial production 600,000; Construction of research facility having an estimated useful life of 5 years but no alternative future use 800,000. II. W Company incurred the following costs in the current year: Equipment with a useful life of four years to be used in various research and development projects 3,600,000; Start-up costs incurred when opening a new plant 8,400,000; Advertising expense to introduce new product 4,200,000; Engineering costs incurred to advance a product to full production stage but economic viability is not yet achieved 2,400,000. III. X Company incurred the following costs during the current year: Routine on-going effort to refine, enrich, or otherwise improve an existing product 250,000; Design, construction and testing of preproduction model 220,000; Quality control during commercial production 300,000; Laboratory research for discovery of new knowledge 360,000. IV. Y Company purchased machines for P2,000,000 each at the beginning of current year. The machines were put into use immediately. Machine AE has a useful life of 5 years and can be used only in one research project. Machine BF will be used for 2 years on a research and development project and then used by the production division for an additional 8 years. The straight line method of depreciation is used. What is the total amount to be recognized as research and development expense for the current year of the four companies owned by Derek Louie?

Q5. Guo Company was formed towards the end of 2020. At the time of formation, the company spent P50,000 for legal fees; stock certification costs of P500,000; initial franchise fee of P1.0 million; initial lease payment of P300,000; and promotional fees of P300,000. How much of the foregoing shall be initially recorded as intangible assets?

Q6. On July 1, 2020, Oftenback Company signed an agreement to operate as franchisee of Jollimac, Inc. for an initial franchise fee of P600,000. Of this amount, P200,000 was paid when the agreement was signed and the balance is payable in four equal annual payments starting July 1, 2021. The payment is not refundable and no future services are required for the franchise. The franchisee's credit rating indicates that it can borrow money at '4% for a loan of this type. What is the cost of the franchise acquired on July 1, 2020?

Q7. On November 1, 2020, a newly established manufacturing firm paid cash to acquire a patent for P1,200,000, a copyright for P750,000, and a franchise for P60,000. The patent expires at the end of 2024, has a total legal life of 20 years in the Philippines and is expected to produce benefits only for 5 years. The copyright has a service life of 10 years. The franchise allows the company to be exclusive sales agent for two years effective November 1, 2020. The amortization amount for the intangibles in 2020 is

Q8. Ivashkin Manufacturing Company acquired three patents in January 2020. The patents have different lives as indicated in the following schedule: Patent A costs P125,000, has 10 years remaining useful life and 17 years remaining legal life. Patent B costs 272,500 with 5 years remaining useful life and 7 years remaining legal life. Patent C costs 656,200 with indefinite remaining useful life and 17 remaining legal life. Patent C is believed to be uniquely useful as long as the company retains the right to use it. In June 2020, the company unsuccessfully attempted to defend its right to Patent B. Legal fees of P127,000 were incurred in this action. The company's policy is to amortize intangible assets by the straight-line method to the nearest half-year. The company reports on a calendar-year basis. How much is the patent amortization expense for the year ended December 31, 2020?

Items 9 to 11 are based on the following: Shafran Food Products, a manufacturer of chocolate drinks, acquired a patent on June 28, 2018 for P340,000. Management expects the patents to be useful to the company for its remaining life of 10 years. Legal life of the patent is 20 years. On January 3, 2019, the company spent P51,000 to successfully defend the patent against a competitor. During 2020, management determines that the estimated remaining life of the patent should be reduced to only five years, including the current year. This was made after a very careful consideration of the situation the company is in, more so with respect to its competitors. The company policy is to amortize the cost of intangible assets using the straight-line method to the nearest full month.

Q9. How much is the patent amortization expense for 2018?

Q10. What is the patent carrying value on January 1, 2020?

Q11. How much is the revised amortization in 2021?

Q12. Narek Company spent P200,000 on research and development cost for an invention during 2011. On January 1, 2016, the invention was patented at a nominal cost that was expensed in 2014. The legal life of the patent was 15 years and the estimated useful life was 9 years. In January 2020, Narek paid P250,000 for legal fees in a successful defense of the patent. What should be the amortization expense for 2020?

Q13. Wispelwey, Inc. incurred P816,000 of research and development costs in its laboratory to develop a patent which was granted on January 2, 2020. Additional costs of P152,000 were incurred in the registration of the patent. The estimated economic life of the patent is eight years. What amount should Wispelwey charge to patent amortization expense for the year ended December 31, 2020?

Q14. Bylsma Company spent P1,440,000 in acquiring a patent on January 3, 2012. Due to the competitive nature of the product, the patent was estimated to have a useful life of 10 years. At the beginning of 2016, the company paid P180,000 for legal fees in a successful defense of the patent. On July 1, 2020, a competitor obtained rights to a patent which made Bylsma's patent obsolete. How much is the loss from the patent obsolescence?

Items 15 to 17 are based on the following: On January 3, 2012, Cassado 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 2016, the company spent P90,000 in successfully prosecuting an attempted infringement of the patent. At the beginning of 2017, the company incurred additional costs of P200,000. It is expected that future economic benefits will flow to the enterprise as a result of this expenditure through cost savings and the asset's use is estimated to be extended by additional 5 years. On July 1, 2020, a competitor obtained rights to a patent which made the company's patents obsolete.

Q15. How much is the patent amortization for the year 2016?

Q16. What is the patent amortization for the year 2017?

Q17. How much is the loss on patent obsolescence recognized in the year 2020?