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Intangible Assets Sample Problems
Intangible Assets Sample Problems
Problem 1
Transactions during the current year of the newly organized Lovely Company included the following:
· Paid legal fees of P60, 000 and stock certificate costs of P20, 000 to complete organization of the
corporation.
· Hired a clown to stand in front of the corporate office for two weeks and hand out pamphlets and
candy, P15, 450.
· Patented a newly developed process with cost as follows:
Legal fees to obtain patent 550,000
Patent application and licensing fees 65,000.
It is estimated that in five years other companies will have developed improved similar process, making
the patent process obsolete.
· Acquired both a license to use a special type of container and a distinctive trademark to be printed
on the container in exchange for 6,000 ordinary shares of Lovely Company selling for P50 per share. The
license is worth twice as much as the trademark, both if which may be used for four years.
· Constructed a shed for P355, 000 to house prototypes or experimental models to be developed in
future research projects.
· Incurred salaries for an engineer and a chemist involved in product development totaling P200, 400
in the current year.
How much should be recognized as total initial cost of all intangible assets?
Legal fees to obtain patent 550,000
Patent application and licensing fees 65,000
Trademark (6,000 x P50 x 1/3) 100,000
License (300,000 x 2/3) 200,000
Total Cost of Intangible Assets 915,000
Problem 2
Tobin Company incurred P1, 700,000 of research and development cost to develop a product for which a
patent was granted on January 1, 2018. Legal fees and other costs associated with registration of the
patent totaled P380, 000. On March 31, 2018, Tobin paid P440, 500 for legal fees in a successful defense
of the patent. What is the total amount that should be capitalized for the patent through March 31, 2018?
Problem 3
Queen Company developed a new machine that reduces the time required to insert the fortunes into its
fortune cookies. Because the process is considered very valuable to the fortune cookie industry, Queen
Company patented the machine. The following expenses were incurred in developing and patenting the
machine:
Research and development laboratory expense 560,000
Metal used in the construction of the machine 165,000
Blueprint used to design the machine 68,000
Legal expenses to obtain patent 320,000
Wages paid for the employees’ work on the research and
Development, and building of the machine (60% of the time
Was spent in actually building the machine) 800,000
Expense of drawing required by the patent office to be
Submitted with the patent application 35,000
Fee paid to government patent office to process application 57,000
At year-end, Queen Company paid P390, 000 in legal fees to successfully defend the patent against an
infringement suit by another entity.
How much of the expenditures should be capitalized as cost of patent?
Problem 4
Golden Company developed a new machine for manufacturing baseballs. Because the machine is
considered very valuable, the entity had it patented. The following expenditures were incurred in
developing and patenting the machine:
b. How much research and development cost should be expensed in the current year?
Problem 6
On January 1, 2015, Taft Company purchased a patent for P9, 150,000. The patent is being amortized
over its remaining legal life of 15 years expiring on January 1, 2030. During 2018, Taft determined that
the economic benefits of the patent would not last longer than ten years from the date of acquisition.
What should be reported in the statement of financial position as carrying amount of patent on December
31, 2018?
Problem 7
On January 1, 2015, Lava Company purchased a patent for a new consumer product for P980, 000. At the
time of purchase, the patent was valid for 15 years. However, the patent’s useful life was estimated to be
only 10 years due to the competitive nature of the product. On December 31, 2018, the product was
permanently withdrawn from sale under governmental order because of potential health hazard in the
product.
What amount should lava charge against income during 2018 if amortization is recorded at the end of
each year?
Problem 8
Zamboanga Company acquired three patents in January 2018. The patents have different lives as
indicated in the following schedule:
Cost Remaining useful life remaining legal life
Patent X 1,500,000 10 8
Patent Y 2,450,000 5 10
Patent Z 3,780,000 6 15
Patent Z is believed to be uniquely useful as long as the entity retains the right to use it. In June 2018, the
entity successfully defended its right to Patent Y. Legal fees of P430,000 were incurred in this action. The
entity’s policy is to amortize intangible assets by the straight line method to the nearest half year. The
entity reports on a calendar-year basis. What amount of amortization should be recognized for 2018?
Problem 10
Romblon Company purchased another entity for P8, 700,000 each. A schedule of the fair value of entity’s
assets and liabilities as of the purchase date follows:
Cash 60,000
Accounts receivable 850,000
Inventory 1,300,000
PPE 4,100,000 6,310,000
Current liabilities 850,000
Note payable – bank (long term) 1,360,000 2,210,000
Net assets at fair value 4,100,000
What is the goodwill arising from the acquisition?