Question
The statement of financial position of Jollibee Corporation as of December 31, 2019 reported the intangible assets, net as follows: Patent AP 1,680,000 Patent B
The statement of financial position of Jollibee Corporation as of December 31, 2019 reported the intangible assets, net as follows:
Patent AP 1,680,000
Patent B 2,450,000
P 4,130,000
During the course of your audit, you noted the following:
a.Patent A was purchased for P 1,920,000 on January 1, 2018, at which date the remaining legal life was sixteen years. On January 1, 2020, Jollibee determined that the useful life of the patent was only eight years from the date of acquisition.
b.On May 1, 2020, Jollibee sold Patent B in an exchange for a P 5,000,000 non-interest bearing note due on May 1, 2023. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note at May 1, 2020 was 14%. The patent was purchased for P3,150,000 on September 1, 2016. On that date, the remaining legal life was fifteen years, which was also determined to be the useful life.
c.On January 3, 2020, in connection with the purchase of a trademark from Kamala Corporation, the parties entered into a noncompetition agreement and a consulting contract. Jollibee paid Kamala P8,000,000, of which three-quarters was for the trademark and one-quarter was for the Kamala's agreement not to compete for a five-year period in the line of business covered by the trademark to be indefinite. Under the consulting contract, Jollibee agreed to pay Kamala P500,000 annually on January 3 for five years. The first payment was made on January 3, 2020.
d.At December 31, 2020, Jollibee determined the recoverable amount of the intangible assets as follows:
Patent AP 1,350,000
Trademark 5,500,000
Noncompetition agreement 1,800,000
Requirements:
1.Gain on sale of Patent B
2.Total amortization to be recognized in 2020
3.Total impairment loss to be recognized in 2020
4. Intangible assets to be recognized in the statement of financial position as of December 31, 2020
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started