Question
1 Entity previously purchased for P4,000,000 a trademark for a very successful coffee drink it markets under the name Cofiormi. The trademark was determined to
1
Entity previously purchased for P4,000,000 a trademark for a very successful coffee drink it markets under the name Cofiormi. The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in direct competition to Cofiormi, thus suggesting the need for an impairment assessment. Data gathered by the entity suggest that the useful life of the trademark is still indefinite, but the net cash flows generated by the trademark have been reduced either to P150,000 annually, with a probability of 80%, or to P300,000, with a probability of 20%. The appropriate risk-free rate is 6%. The appropriate risk-adjusted interest rate is 10%.
Question
What is the amount of the impairment loss, if any, on the trademark?
2.
Entity Z is a newly established computer software company. During 20X4, the entity incurred and paid the following costs relating to a new computer software package that it expects to market in 20X5:
Cost of planning, designing, and testing during the R&D phase-P500,000
Coding costs to establish technological feasibility-300,000
Coding and testing costs after establishment of technological feasibility-100,000
Production of product masters-400,000
Entity expects total revenue of P5 million over the four-year life of the product. The entity began marketing the product in 20X5, earning revenues of P1 million during the year.
Questions
What are the journal entries for the costs incurred in 20X4?
What is the journal entry to record amortization of computer software for the year 20X5?
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