1. On January 1, 2019, Joax Ltd received approval for a patent from the Patent Office. Legal costs incurred were sh.25,000,000. On June 30, 2020, Joax incurred further legal costs of sh.35,000,000 to defend its patent against a competitor trying to sell a knock-off product. The court action was successful. The patent has a life of twenty years.

Required:

1. What are the variables to consider in determining the useful life of a patent? (3 marks)
2. Calculate the carrying value of the patent as at December 31, 2019, and December 31 2020. (3 marks)
3. Calculate the carrying value of the patent as at December 31, 2020, if management decides on January 1, 2020 that the patients life is only fifteen years from the approval date. (2 marks)
4. What are the accounting treatment and the issues if the patent was assessed to have an indefinite life? (2 marks)

2. Kelly intends to start a business of importing vehicles and selling them locally. He has rented a piece of land and an office for the business. He requests you to guide him how he will be recording the transactions in his financial statements since he has little knowledge of accounting

Required

Prepare a report explaining all the books of accounts he needs to maintain within the trading cycle as well as the treatment of the summarized transactions at the end of the year. Consider all relevant possibilities in mode of the business transactions (6 marks)

3. Ann has been operating a curio shop in which she sells different items to local and international tourist in Nairobi. Most of the items she designs them herself. Of late she has seen the same items sold in the market though they are not in good quality like hers. She seeks of your advice on how to protect her items.

Required

Advise Ann on actions to take to protect her artwork. How should she record the related transaction in the books of accounts? (4 marks)