Reference no: EM133149154
Question - The following information pertains to VIETNAM CORP.'s intangibles as of December 31, 2021:
On January 1, 2021, VIETNAM CORP. signed an agreement to operate as a franchisee for 10 years of MCDOLIBEE FRANCHISE CORP. for an initial franchise fee of P3,000,000. P600,000 was paid as a down-payment with the balance being payable in 3 equal annual payments beginning January 1, 2022. The agreement provides that the down payment is non-refundable and that no future services are required of Page 6 of 7 MCDOLIBEE FRANCHISE CORP. The prevailing implicit rate for loans of this type was at 14%. The agreement further provides that 5% of the revenue from the franchise must be paid to the franchisor annually. VIETNAM CORP.'s revenue from the franchise for 2021 was at P12,000,000. The company also estimates that the net annual cash flows from the franchise agreement shall be P370,000. The prevailing market rate of interest on December 31, 2021 was at 10%.
On April 1, 2021, VIETNAM purchased a trademark for an amount of P600,000. Due to the indefinite renewal option of the trademark, the entity assessed the intangible asset to have an indefinite life. On June 30, 2021, the company is successful in defending the trademark from infringement. Legal costs in relation to the successful defense is P30,000. Due to internal impairment indicators, VIETNAM assessed the trademark to be impaired on December 31, 2021. The fair value less cost to sell of trademark on that date is P450,000. The annual future cash flows from the trademark is P50.000.
A patent was purchased from another entity for P1,000,000 on January 1, 2019 with an estimated useful life of 10 years. Expenditures totalling to P326,400 for successfully defending the patent was incurred in July 1, 2021. By the end of 2019 and 2020, estimates place future net cash flows from the patent at P200,000 for its remaining life. By the end of 2021, the estimate had been revised to P80,000 because of a recent technological development in the industry. The prevailing market rate of interest were at 9%, 9.5 at the end of 2019 and 2020, respectively.
Required -
1. What is the carrying amount of the franchise at the end of 2021?
2. What is the carrying amount of the trademark at the end of 2021?
3. What is the carrying amount of the trademark at the end of 2019, 2020 & 2021?
4. What is the total amount of expense to be recognized in the statement of profit or loss for 2021?
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