Reference no: EM133172656
Question 1 - Boston Company acquired a patent right on July 1, 2020 for P1,250,000. The asset has a legal life of 10 years but due to the rapidly changing technology, management estimates a useful life of only five years. On January 1, 2022, management is uncertain that the process can actually be made economically feasible, and decides to write down the patent to an estimated market value of P750,000. Amortization will be taken over three years from that time. What is the patent carrying value at December 31, 2022?
a. P500,000
b. P625,000
c. P937,500
d. P1,250,000
Question 2 - Niagara Company is contemplating to acquire Toronto, Inc. on January 1, 2022. The information on Toronto's profit and net assets for the last five years is as follows:
Year / Profit / Net Assets
2021 / 4,000,000 / 20,200,000
2020 / 3,200,000 / 20,000,000
2019 / 3,000,000 / 18,500,000
2018 / 3,800,000 / 17,900,000
2017 / 2,500,000 / 15,600,000
It is agreed that Niagara is willing to pay for goodwill measured by capitalizing at 40% the excess of the average profits over normal return on net assets. The normal return on average net assets for the industry to which Toronto belongs is 10%.
How much should Niagara Company pay to Toronto, Inc. in the acquisition of the latter's net assets?
a. P20,200,000
b. P22,080,000
c. P23,400,000
d. P23,840,000
Question 3 - Perth Company incurred the following costs during 2022:
Design of tools, jigs, molds and dies involving new technology, P125,000
Modification of the formulation of a process, P160,000
Trouble shooting in connection with breakdowns during commercial production, P100,000
Adaptation of an existing capability to a particular customer's need as part of a continuing commercial activity, P110,000
How much should Perth report as a research and development expense in its 2022 profit or loss?
a. P125,000
b. P160,000
c. P235,000
d. P285,000