Reference no: EM133174453

Questions -

Q1. On July 1, 2022, Ghana Company signed an agreement to operate as a franchisee of Fast Foods, Inc. for an initial franchise fee of P6,000,000. Of this amount, P2,000,000 was paid when the agreement was signed and the balance is payable in four equal annual payments. The payment is not refundable and no future services are required for the franchise. Ghana's credit rating indicate that it can borrow money at 14% for a loan of this type. Information on present and future value factors:

Present value of 1 at 14% for 4 periods: 0.59

Present value of an ordinary annuity of 1 at 14% for 4 periods: 2.91

What is the cost of the franchise acquired on July 1, 2022?

a. P4,360,000

b. P4,910,000

c. P6,000,000

d. P6,760,000

Q2. On January 3, 2018 the Estonia 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 2022, the company spent P90,000 in successfully prosecuting an attempted infringement on the patent. At the beginning of 2023, the company incurred additional cost of P200,000. It is expected that future economic benefits will flow to 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, 2026, a competitor obtained rights to a patent which made the company's patent obsolete.

How much is the patent amortization for the year 2023?

a. P75,600

b. P44,000

c. P51,500

d. P88,000

Q3. Refer to Item 2. How much is the loss on patent obsolescence recognized in the year 2026?

a. P268,000

b. P286,000

c. P334,750

d. P343,750