Fortune Inc., a manufacturer of plastic materials useful for various textile company, expended

P2,050,000 in research and development costs which resulted to a new formula which makes its

plastic products more environmentally friendly and biodegradable. The patent related to the "know

how" was approved and granted by the government in late December of 2016 after payment of the

necessary legal and processing fees at P840,000. The company estimates that it would be able to

benefit from the formula for 8 years, after which competitors would have come up with the same

formula.

On January 1, 2019, Fortune Inc. spent P270,000 to acquire a related patent which successfully

extended the life of original patent for additional 4 years.

On January 1, 2020 The company successfully defended the patent for a total legal fee of P175,000.

By the end of 2021, however, the company determined that with the competitor launching a more

superior product, the patent had been impaired. The company estimates that the remaining net cash

flows from the patent shall be P115,210 for the next five years, the revised remaining useful life. The

appropriate market rate of interest was 8% at this time.

Requirements:

1. What is the amortization expense in each year:

 

2. What is the recoverable value of the patent at the end of 2021?

3. What is the impairment loss to be recognized in the 2021 income statement?

4. What is the amortization expense in 2022?