Reference no: EM132934697

Questions -

Q1) Sol Company made the following expenditures relating to Product ABC:

Legal costs to file a patent on Product ABC. Production of the finished product would not have been undertaken without the patent- P750,000

Special equipment to be used solely for the development of Product ABC. The equipment has no other use and has an estimated useful life of four years- P3,000,000

Labor and material costs incurred in producing a prototype model before the establishment of technological feasibility- P2,000,000

Cost of testing the prototype before the establishment of technological feasibility - P1,500,000

Advertising costs- P550,000

What is the total amount of costs that will be expensed when incurred?

a. P4,050,000

b. P7,800,000

c. P550,000

d. P7,050,000

Q2) At the beginning of the current year, Leo Company signed an agreement to operate as a franchisee for an initial franchise fee of 6,000,000. On the same date, the entity paid 2,000,000 and agreed to pay the balance if four equal annual payments of 1,000,000 at every year-end. The down payment is not refundable, and no future services are required of the franchiser. The entity can borrow 14% for a loan of this type.

Present Value of 1 at 14% for 4 periods- 0.59

Future amount of 1 at 14% for 4 periods- 1.69

Present Value of an ordinary annuity of 1 at 14% for 4 periods- 2.91

What is the initial measurement of the franchise?

a. P6,760,000

b. P4,360,000

c. P4,910,000

d. P6,000,000