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What is the correct carrying value of the franchise

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Reference no: EM133184959

Question - The accounting records of Ilocos Sur Corp. which was organized in 2020 include only one account for all intangible assets.  The following is a summary of the items debited to the said account in 2020 and 2021:

Date

Particulars

Amount

April. 1, 2020

Franchise (indefinite term)

P1,260,000

July. 1

Lease advance payments (2-year term, starting July 1, 2020)

840,000

Dec. 31

Net loss for 2020 including incorporation fees, P30,000, and related legal fees of organizing the business, P150,000.


480,000

Jan. 2, 2021

Purchased patent (10 year life)

2,220,000

Mar. 1

Cost of developing a secret formula

250,000

July 1

Purchased copyright (indefinite term

352,000

Jul. 1

Legal fee for successful defense of the patent purchased in Jan 1, 2021


79,500

Audit notes:

On December 31, 2020, the management estimates that the annual net future cash flows from the franchise's continued use was at P180,000. On December 31, 2021, this estimate was revised due to decline in product demand to P120,000 annually.

On December 31, 2021, the estimated annual net future cash flows from the patent's continued use was at P534,630 for its remaining life. While the estimated annual net future cash flows from the copyright was at P50,000.

The prevailing market rate of interest as of December 31, 2020 and 2021 were at 12% and 11%, respectively.

Based on the above information and on your audit, what is the correct carrying value of the Franchise as of December 31, 2021?

Reference no: EM133184959

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