FINANCIAL ACCOUNTING & REPORTING (Problems) Prof. Michael F.

Tiu

INTANGIBLE ASSETS AND GOODWILL

E1. During 2025, Azalea Company acquired the following:

 500 taxi licenses for P20,000 each. Azalea Company intends to use 300 of the said
licenses for its own fleet, while the rest are intended for sale to other taxi
drivers/operators
 An operating system for a GPS tracking machine for P150,000
 An application software for route identification, vehicle tracker and fare calculation,
P250,000
The total amount initially recognized as intangible assets is

E2. The following expenditures were incurred by Bluebell Company during 2025:
 Legal fees incurred to register a trademark acquired, P60,000
 Costs of beta testing a new software application, P75,000
 Advertising costs for launching new software application, P100,000
 Research expenses for developing a new marketing strategy for Bluebell Company’s
existing gaming software, P50,000
 Software updates, P35,000
 Licensing fees for patent usage, P25,000
The total amount initially recognized as intangible assets is

E3. Camellia Company signed an agreement on January 1, 2025, to operate as a franchise of

Chamomile Company for an initial franchise fee of P1,500,000. Of this amount P500,000
was paid when the agreement was signed and the balance is payable in 4 annual payments
of P250,000 beginning January 1, 2026. The down payment is not refundable and no future
services are required of the franchisor. Implicit rate for a note of this type was 14%.
3 periods 4 periods 5 periods
PVF of P1 @ 14% 0.675 0.592 0.519
PVF of an OA @ 14% 2.322 2.914 3.433
The amount initially recognized as intangible assets is

E4. Daffodil Company in 2025 acquired Dragonwell Company and paid P5,500,000. The
amount included P350,000 for a technology patent; P250,000 for a franchise agreement and
P750,000 which was attributed to the company’s good reputation.
Daffodil Company likewise paid Dragonwell Company P400,000 for a non-competing
contract preventing Dragonwell Company from engaging in a similar industry for a period
of five years.
After the completion of Dragonwell Company’s acquisition, Daffodil Company, incurred
P120,000 as training cost for a specialized product line of Dragonwell Company which
Daffodil Company intends to continue.
The amount initially capitalized as intangible assets is
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E5. During 2025, Edelweiss Company received from the national government by way of a
grant, a license to operate a radio and a television station. The fair value of the license is
currently at P800,000. Training costs to operate the broadcast transmitters and digital
console software, P60,000
The amount initially capitalized as intangible assets is

E6. Freesia acquired a license to use a special type of container and a distinctive trademark to
be printed on the container in exchange for 15,000 shares of Fennel Company’s P10 par
value common stock current selling in the market at P45 per share. The license based on an
appraisal made is worth twice as much as the trademark, both of which may be used for 5
years
The amount initially capitalized as intangible assets is

E7. Geranium Company owns a patent named “G6” with a carrying amount of P450,000. On
June 30, 2024, Geranium Company agreed to exchange its patent for that of Hyacinth
Company’s patent named “H2.” The fair value of patent “G6” has been assessed at
P650,000. Geranium Company paid Hyacinth Company P75,000 to complete the
exchange
The amount initially capitalized as intangible assets is

E8. Iris Company has a license to provide fixed telecommunication services to Italy, which it
acquired in 2023. In December 28, 2025, the Italian government offered to exchange the
original license for another one that will allow Iris Company to operate both fixed and
mobile services. Iris Company accepted the offer of exchange. The carrying amount of the
Iris Company’s original license was P600,000 which currently has a fair value of
P1,500,000.
The amount initially capitalized as intangible assets is

E9. Jasmine Company agreed to exchange its patent J3 to that of Kalmia Company’s patent K2.
The cash configuration of the exchange was insignificant. The carrying values and fair
values of Jasmine Company’s J3 patent were P500,000 and P625,000, while the carrying
value and fair values of Kalmia Company’s K2 were P475,000 and P625,000 respectively.
The amount capitalized by Jasmine Company as intangible assets is

E10. Lavander Company provided the following information in relation to the creation of its
gaming software DM’s Adventures:
 Market research to identify gamer’s needs, P65,000
 Feasibility studies to assess technical viability, P60,000
 Salaries of researchers, P80,000
 Materials and equipment used in research, P25,000
 Salaries of software developers:
 prior to achieving technical feasibility, P75,000
 after achieving technical feasibility, P45,000
 Coding and programming activities
 prior to achieving technical feasibility, P100,000
 after achieving technical feasibility, P85,000
 Software design and architecture, P120,000
 Testing and debugging costs, P65,000
 Project management related to development, P50,000
 Fees to copyright the computer code for DM’s Adventures, P90,000
 Marketing and advertising costs, P150,000
 Customer training and support manuals, P25,000
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 Final testing and quality assurance, P40,000

a. The amount reported in the P&L under research and development expenses
b. The amount capitalized as intangible asset
c. The amount reported in the P&L section under prelaunch expenses

E11. Marigold Company is developing a medicine delivery device. The total costs incurred for
the project was P6,000,000 of which P3,600,000 was incurred before July 1, 2025 and
P2,400,000 between July 1, 2025 and September 30, 2025. Marigold Company’s
management team determined that the device will generate probable future economic
benefits and achieved technical feasibility on July 1, 2025.
The amount initially capitalized as intangible assets is

E12. Narcissus Company is involved in the distribution of electricity in Northern Luzon.

Management was concern about Narcissus Company’s contribution to forest fires, as the
heat generated from its systems have been identified as a major cause of these fires.
Narcissus Company’s research and technology division is developing an infrared camera
that may be attached to a drone. The camera is capable of identifying hot-spots in the
system and will enable management to take preventive action.
In 2025, Narcissus Company spent P500,000 to develop the camera. In a presentation to
its board of directors on December 20, 2025, the R&D team was able to prove the
technical feasibility of the project and how it could aid the company in reducing repair
cost as well as prevent any potential losses due to forest fires. The team, however, has
also informed the board that the existence of the technology needed to complete the
project is not yet available.
By June of 2026, management spent an additional P300,000. The R&D team has acquired
the technology needed for the camera. The team estimated that it will take another
P250,000 to complete the project.
By October 2026, additional cost of P80,000 was spent on the development of the
camera. On this date, the board decided to provide the necessary funds to complete the
said project.
By December 15, 2026, after spending an additional P135,000, the camera was set for
use.
The amount to capitalized as intangible asset is:

E13. Orchid Company, a newly established publishing company, aims to establish itself in the
children's book market. It develops a new brand name, "Daena’s Storyland," and invests
in marketing and promotional activities to build brand awareness.
The following expenditures were incurred in relation to the creatin of “Daena’s
Storyland:”
 Market research to identify target audience: P35,000
 Brand development and design: P50,000
 Market testing and consumer surveys: P20,000
 Advertising and promotional campaigns: P80,000
 Public relations activities: P35,000
 Salaries of marketing and sales personnel: P150,000

The cost to be capitalized as an intangible asset is

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E14. Peony Company provided the following information:

 Purchased patent on January 1, 2025 for P3,600,000 and was expected to be a
source of net cash inflows for at least 18 years.
 Purchased patent on January 1, 2025 for P4,200,000 and was expected to be a
source of net cash inflows for at least 25 years.
The total amortization expense for 2025 is

E15. Quince Company provided the following information:

 Purchased a copyright on January 1, 2025 for P1,500,000 that has a remaining legal
life of 45 years. An analysis of consumer habits and market trends provides
evidence that the copyrighted material will generate net cash inflows for only 30
more years
 On July 1, 2025, Quince Company completed its development a cutting-edge
software application. The software's useful life was expected to be five years, but
Quince Company expects a significant portion of the software's revenue to be
generated in the early years of its life cycle. Quince Company decides to apply the
double-declining balance method
 Acquired a patent on October 1, 2025 for P8,000,000 and expects that the patent
will be useful for a total estimated production of 5,000,000 units. In 2025, total
units produced were 1,650,000.
The total amortization expense for 2025 is

E16. Ranunculus Company purchased patent on January 1, 2025 for its fair value of
P6,000,000 and was expected to be a source of net cash inflows for at least 15 years. A
firm commitment was agreed upon with another entity that will purchase it in 5 years at
75% of its fair value at the date it was acquired.
The amortization expense for 2025 is

E17. On January 1, 2021 Snowdrop Sports acquired the local broadcast rights of the 2025
Winter Games slated on December 9 to 22, 2025 for P12,000,000. Management expects
that Winter Games related advertising revenue to commence from July 1, 2023
Amortization expense reported for the years 2021 - 2025 are

E18. Sunflower Company purchased a telecom license on January 3, 2025 for P15,000,000.
The license has an initial term of 10 years. There is an established practice that grants a
single renewal of telecom licenses at no additional cost provided that the holder adheres
to all the requirements set forth in the license agreement. Management intends to
comply with all the regulations as and when they are issued
The amortization expense for 2025 is

E19. Tulips Company acquires a patent for a new manufacturing process on January 1, 2022,
for P1,000,000. The patent has an estimated useful life of 10 years. The company uses
the straight-line method for amortization.
On December 31, 2025, due to rapid technological advancements in the industry, Tulips
Company reassesses the patent's useful life and determines it will only be valuable for an
additional 3 years.
a. The prior period adjustment to the retained earnings account to be recorded on
January 1, 2026
b. The amortization expense reported in the 2026 income statement
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E20. On January 1, 2024, Uva Ursi Company acquired “UNLI”, a brand name for
P2,000,000. The brand name is considered to have an indefinite useful life. Uva Ursi
Company amortizes similar assets over a period of 10 years.
On December 31, 2025, due to increased competition and changing market trends, the
company performs an impairment test and determines that the recoverable amount of
the brand name is P1,800,000.
On December 31, 2027, the company reassesses the brand name and determines that its
recoverable amount has increased to P2,150,000.
a. The carrying amount of brand name “UNLI” as reported in the December 31, 2024
balance sheet
b. The amount to be reported in the 2025 income statement is
c. The carrying amount of brand name “UNLI” as reported in the December 31, 2026
balance sheet
d. The amount to be reported in the 2027 income statement is

E21. On January 1, 2025, Violet Company acquired a 10-year fishing license and paid
P6,000,000.
The fair value of the fishing license on December 31, 2025, and 2026 were P5,535,000
and P5,060,000 respectively.
a. The revaluation surplus recognized and reported in the OCI section in 2025
b. Portion of the revaluation surplus transferred to retained earnings in 2026
c. The carrying amount of the fishing license to be reported in the December 31, 2026
balance sheet
d. The amount of appreciation reported in the OCI section in 2026
e. The revaluation surplus balance reported in the equity section of the December 31,
2026 balance sheet

E22. Wallflower Company acquired a trademark on January 1, 2025 for a total consideration of
P1,650,000. The trademark was expected to be useful for 10 years and a residual value of
P75,000.
On December 31, 2026, Wallflower Company conducted a recoverability test as there
were evidences of probable impairment in relation to the trademark. The recoverable
amount as determined by Wallflower Company was P1,260,000 with the residual value
being expected at P40,000.
On December 31, 2029, the recoverable amount of the trademark was determined to be
P800,000.
a. The impairment loss included in the P&L section of the 2026 income statement is
b. The amortization expense included in the P&L section of the 2027 income statement
is
c. The recovery from impairment included in the P&L section of the 2029 income
statement is

E23. Xylosma Company provided the following information:

 A patent with a carrying amount on January 1, 2025 of P750,000, a remaining legal life
of 6 years and was being amortized using the straight-line method was sold on June
30, 2025 for P700,000
 A trademark with a carrying amount on January 1, 2025 of P400,000, a remaining life
of 4 years and was being amortized using the straight-line method has become
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obsolete on March 31, 2025 due to technological advancements. There is no market

for the trademark, and the company does not expect any future revenue from it.
a. The gain or loss arising from the derecognition of the patent
b. The net effect to the profit or loss section of the 2025 income statement

E24. Yarrow Company has recently bought Zephyranthes Company at a cost of P18,000,000.
Yarrow Company acquired the following assets at fair value:
Land and building 6,500,000
Production machinery 3,200,000
Inventory 2,800,000
Accounts receivable 1,400,000

In addition, Zephyranthes Company owned but had not recognized the following:
Trademark 750,000
Patent – for special coating formula 1,000,000
The amount of goodwill recognized arising from the acquisition is

E25. The owners of Carnation Company are planning to sell its business to new interests.
Carnation Company believes that the selling price would be for an amount equal to the
entity’s net assets fair value plus goodwill determined by capitalizing average regular net
earnings at 20%. The fair value of Carnation Company’s net assets was P17,600,000.
Cumulative earnings for the past five years amounted to P20,500,000 which includes an
expropriation gain of P1,800,000 from year 2 and a fire loss of P300,000 in year 4.
The amount of goodwill is

E26. Buttercup Company engaged you to assist in the acquisition of Lilac Company on January
2028. It was agreed that Lilac Company would receive an amount for goodwill based on
the capitalization of excess earnings at 60%.
The following information was taken from the records of Lilac Company.
Year 2024 2025 2026 2027 2028
Net income 280,000 300,000 335,000 375,000 430,000
Net assets 750,000 810,000 890,000 960,000 1,040,000
The normal rate of return on the average net assets in the industry to which Lilac Company
operates is 16%.
a. The goodwill based on the capitalization of excess earnings
b. The purchase price for Lilac Company is

E27. At December 31, 2025, the carrying amounts of the assets of Gardenia Company’s
wooden toys division were:
Factory building 330,000 Brand name “SW” 71,500
Inventory 148,500 Goodwill 50,000
There is a declining interest to wooden toys because of aggressive marketing of
computer-based toys. The net recoverable amount of the toy car division at December
31, 2025 was P425,000
Determine the amount of impairment charged to
a. Factory Building
b. Inventory
c. Brand name
d. Goodwill
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E28 Anemone Company has determined that its Blossoms division is a cash-generating unit.
The carrying amounts at December 31, 2025 are as follows:
Factory building 504,000 Equipment 196,000
Land 300,000 Inventory 150,000
Zod Company calculated the value in use of the division to be P875,000. The inventory’s
net realizable value is P150,000 while the fair value less cost to sell the land was P270,000
Determine the amount of impairment charged to:
a. Factory
b. Land
c. Equipment
d. Inventory

E29. Daisy Company has determined that its Buds division is a cash-generating unit. The
carrying amounts at December 31, 2025 are as follows:
Land 260,000 Building 380,000
Land Improvement 140,000 Equipment 220,000
Daisy Company uses the straight-line method to record depreciation. The estimated
useful lives of the land improvement, building and equipment were 7, 10 and 15 years
respectively.
On December 31, 2028, the recoverable amount of the cash generating unit is P700,000.
The land’s recoverable amount was identified to be P210,000.
Determine the following:

Impairment loss Recovery from impairment

in 2025 in 2028
Land
Land Improvements
Building
Equipment

MFT/CDE03012025