EXERCISE 7

The Melbourne Company acquired several small companies at the end of 20x12 and, based on the acquisitions,

reported the following intangibles in its December 31, 20x12 balance sheet:

Patent P200,000

Copyright 400,000

Tradename 350,000

Computer software 100,000

Goodwill 900,000

The company's accountant determines the patent has an expected life of 10 years and no expected residual value,

and that it will generate approximately equal benefits each year. The company expects to use the copyright and

trade name for the foreseeable future. The accountant knows that the computer software is used in the

company's 120 sales offices. The company has replaced the software in 60 offices in 20x13, and expects to replace

the software in 40 more offices in 2014 and the remainder in 20x15.On December 31, 20x13, there are no indications of impairment of patent and computer software. The following

information relate to the other intangible assets:

a) Because of the rampant piracy, the copyright is expected to generate cash flows of just P8,000 per year.

b) The trade name is expected to generate cash flows of P15,000 per year.

c) The goodwill is associated with Melbourne 's Company reporting unit. The cash flows expected to be

generated by the Melbourne 's Company reporting unit is P200,000 per year for the next 25 years. The

reporting unit has a carrying amount of P2,100,000.

Required:

Based on the above and the result of your audit, determine the following: (Assume that the appropriate discount

rate for all items is 5%)

1. Total amortization of intangible assets in 20x13

2. Total loss on impairment in 20x13

3. Carrying amount of goodwill on December 31, 20x13

4. Carrying amount of other intangible assets on December 31, 20x13

Exercise 8

Transactions during 20x9 of the newly organized Baby G Company included the following:

Jan. 2 Paid legal fees of P225,000 and stock certificate costs of P124,500 to complete organization of the

corporation.

15 Hired a clown to stand in front of the corporate office for 2 weeks and hand out pamphlets and

candy to create goodwill for the new enterprise. Clown cost, P15,000; pamphlets and candy, P7,500.

April 1 Patented a newly developed process with costs as follows:

Legal fees to obtain patent P 643,500

Patent application and licensing fees 95,250

Total P 738,750

It is estimated that in 6 years other companies will have developed improved processes, making the

Baby G Company process obsolete.

Acquired both a license to use a special type of container and a distinctive trademark to be printed

on the container in exchange for 6,000 shares of Baby G's no-par ordinary shares selling for P75 per

share. The license is worth twice as much as the trademark, both of which may be used for 6 years.

July 1 Constructed a shed for P1,965,000 to house prototypes of experimental models to be developed in

future research projects.

Dec. 31 Incurred salaries for an engineer and chemist involved in product development totaling P2,625,000

in 20x9.

REQUIREMENTS:

1. Determine the cost of patent.

2. Determine the cost of licenses.

3. Determine the cost of trademark.

4. Determine the carrying amount of Intangible Assets.

5. Total amount resulting from the foregoing transactions that should be expensed when incurred.