Activity on Intangible Assets
Problem 1. On April 1, 2018, Brokelyn Co. acquired a patent from Waryours Corporation. During the
acquisition, Brokelyn paid P500,000 cash and issued a promissory note of P2,000,000 payable in four
equal annual installments beginning April 1, 2019. The patent on the date of acquisition has a carrying
value of P1,850,000 and a fair value P2,084,932, while note similar to the note issued by Brokelyn has a
market rate of interest of 9%. The patent estimated useful life is 10 years.
April 1, 2021, Brokelyn purchased for P1,750,000 a patent similar to its existing patent. This patent is
estimated to have a useful life of 10 years. On October 1, 2021, Brokelyn paid P250,000 in relation to
patent infringement to retain the rights the patent.
On January 1, 2022, Brokelyn bought a patent related its old patent with an estimated life of 5 years for
P200,000. On January 1, 2023, Brokelyn bought another related patent for P800,000, this patent has an
estimated useful life of 10 years.
Compute for the following:
1) Patent amortization for 2018.
2) Patent Amortization for 2021.
3) Patent Amortization for 2022.
4) Patent Amortization for 2023.
5) Carrying Value of the Patent account on December 31, 2023.
Problem 2. On January 1, 2019, Mad Rick Company bought a trademark from Laykers Corporation for
P500,000. The trademark has a remaining legal life of 4 years but Mad Rick is certain that the trademark
will be renewed for another 10 years. On December 31, 2021, due from upward trends of revenue
related to the acquired trademark Mad Rick made a decision to renew the trademark indefinitely.
Mad Rick estimated that the average annual cash flow from trademark is P50,000. The discount rate
used by Mad Rick to account for these cash flows is 11%.
On December 31, 2023, due from increasing market competition Mad Rick now estimated the cash flows
from the trademark at P30,000 annually.
Compute for the following:
1) Trademark amortization for 2020.
2) Carrying Value of Trademark as of December 31, 2021.
3) Carrying Value of Trademark as of December 31, 2023.
Problem 3. On October 31, 2020, Baston Company signed an agreement to operate a franchise Mami
Hot Corporation for 10 years at an initial P6,000,000. The same Baston paid P1,500,000 cash and issued
a promissory note payable in four equal annual installments for the balance beginning October 31, 2021.
The down payment is not refundable and no future services are required of the franchisor. Baston can
borrow at a rate of 11% for this type of loan.
Compute for the following:
1) Acquisition cost of the franchise.
2) Carrying value of the franchise as of December 31, 2023.
Problem 4. On April 1, 2020, You Stone Corporation completed the development and the registration for
a new copyright. You Stone spend P150,000 for the development of the copyright from January to
March 2020 and P50,000 for the registration on April 1, 2020. The copyright is estimated to have a
useful life of 5 years, while revenue related to the first printing is estimated at P4,500,000 realizable as
follows: 2020 – P500,000, 2021 – P 2,000,000, 2022 – P1,000,000, 2023 – P750,000 and 2024 –
P250,000.
Compute for the amortization of copyright for 2020 assuming You Stone uses the:
1) Useful life or
2) Revenue from the first printing in amortizing the copyright.
Problem 5. On January 1, 2020, Chick Ago Incorporated, completed the improvements related to a lease
signed on January 1, 2019 for a term of 10 years. The total cost of improvements is P8,100,000 and it is
estimated to have a useful life of 20 years and a salvage value of P100,000. On January 1, 2023,
additional improvement was completed at a total cost of P2,500,000, this improvement is estimated to
have a useful life of 15 years with a salvage value of P250,000. On the same day Chick Ago negotiated a
possible extension of the lease term for another 10 years. After the negotiation Chick Ago is certain to
land an extension on the lease term.
Compute for the following:
1) Depreciation for 2022.
2) Depreciation for 2023.
3) Carrying value of the Leasehold Improvements account as of December 31, 2023.
