BALIUAG UNIVERSITY

Integrated Accounting Course II

Summer 2017

MODULE 5: Intangible Assets LVC

 RELATED STANDARDS: IAS38 – Intangible Assets; SIC 32 – Intangible Assets—Web Site Costs; IFRS 3 –
Business Combination; US GAAP; RA 8293, IFRIC 12

 Definition of Terms
Amortization – The systematic allocation of the depreciable amount of an intangible asset over its useful life.
Development – The application of research findings or other knowledge to a plan or design for the production of
new or substantially improved materials, devices, products, processes, systems or services before the start of
commercial production or use.
Entity-specific value – The present value of the cash flows an entity expects to arise from the continuing use of
an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
Intangible asset – An identifiable non-monetary asset without physical substance.
Monetary assets – Money held and assets to be received in fixed or determinable amounts of money.
Research – Original and planned investigation undertaken with the prospect of gaining new scientific or
technical knowledge and understanding.

 Scope
 IAS 38 applies to all intangible assets other than:
 Financial assets (see IAS 32 Financial Instruments: Presentation)
 Exploration and evaluation assets (see IFRS 6 Exploration for and Evaluation of Mineral Resources)
 Expenditure on the development and extraction of minerals, oil, natural gas, and similar resources
 Intangible assets arising from insurance contracts issued by insurance companies
 Intangible assets covered by another IFRS.

 The three critical attributes of an intangible asset

 Identifiability (an intangible asset is identifiable when it)
 Is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged,
either individually or together with a related contract)
 Arises from contractual or other legal rights, regardless of whether those rights are transferable or
separable from the entity or from other rights and obligations.
 Control (power to obtain benefits from the asset)
 An entity controls an asset if the entity has the power to obtain the future economic benefits
flowing from the underlying resource and to restrict the access of others to those benefits.
 Future economic benefits (such as revenues or reduced future costs)
 The future economic benefits flowing from an intangible asset may include revenue from the sale of
products or services, cost savings, or other benefits resulting from the use of the asset by the entity.

 Specific intangible assets

Intangible Definition Legal
Asset Life/Amortization/Impairment
Patent An exclusive right granted for a product, process or an 20 years
improvement of a product or process which is new, inventive
and useful which gives the inventor the right to exclude
others from making, using, or selling the product during the
life of the patent. (Intellectual Property Office of the
Philippines)
Copyright The legal protection extended to the owner of the rights in Life of the author plus 50
an original work (every production in the literary, scientific years after his death
and artistic domain). (Intellectual Property Office of the
Philippines)
Trademark/ A tool used that differentiates goods and services from each 10 years legal life but may be
Tradename/ other. A trademark can be one word, a group of words, sign, renewed. Normally not
Brand name symbol, logo, or a combination of any of these. (Intellectual amortized but subject for
Property Office of the Philippines) impairment.
Franchise An exclusive right granted by the franchisor (government or Amortize if with definite
private companies) to a franchisee to use the property or the period or tested for
rights (trademark, patent and process of the franchisor) impairment if with indefinite
period
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Intangible Definition Legal

Asset Life/Amortization/Impairment
Goodwill An asset representing the future economic benefits arising Not amortized but tested for
from other assets acquired in a business combination that impairment at least annually
are not individually identified and separately recognized.
(IFRS 3)
Leasehold The right acquired by the lessee by virtue of a contract of Amortized over the life/term
right lease to use the specific property owned by the lessor for a of the lease
definite period of time in consideration for a rent.
Right or A permit from an authority to own or use something, do a If the term is renewable
license particular thing, or carry on a trade. (i.e. broadcasting indefinitely, the license is
license, airline right) tested for impairment
Customer Consists of information about customers such as their name Tested for impairment
list and contact information. A customer list also may be in the
form of a database that includes other information about the
customers such as their order history and demographic
information.
Service An arrangement whereby a government or other public Amortized over definite
concession sector body contracts with a private operator to develop (or period
upgrade), operate and maintain the grantor's infrastructure
assets. (IFRIC 12)

 Acquisition of intangible assets

a. Separate acquisition
b. Part of a business combination
c. Government grant
d. Exchange of assets
e. Self-creation (internal generation)

 Acquisition by deferred credit

 If the intangible asset is acquired by a deferred plan beyond normal credit terms, the intangible asset is
measured at the cash price equivalent. The difference is accounted as interest expense over the credit
period.

 Acquisition by issuance of securities

 If the intangible asset is acquired by issuance of equity securities, the intangible asset is measured at (order
of priority):
i. Fair value of the intangible asset received
ii. Fair value of the equity securities
iii. Par value of the equity securities
 If the intangible asset is acquired by issuance of debt securities, the intangible asset is measured at (order
of priority):
i. Fair value of debt securities
ii. Fair value of the asset received
iii. Face value of the debt securities

 Acquisition by exchanges of assets

 The cost of such an intangible asset is measured at fair value unless
a. The exchange transaction lacks commercial substance or
b. The fair value of neither the asset received nor the asset given up is reliably measurable.
 If the intangible asset is acquired by exchange of another asset, the intangible asset is measured at (order
of priority):
i. Fair value of the asset given up
ii. Fair value of the intangible asset received
iii. Carrying amount of the asset given up
 If the exchange lacks commercial substance, the intangible asset is measured at the carrying amount of the
asset given up.

 The cost of a separately acquired intangible asset comprises:

 Purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates; and
 Any directly attributable cost of preparing the asset for its intended use such as:

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a. Costs of employee benefits (as defined in IAS19) arising directly from bringing the asset to its working
condition;
b. Professional fees arising directly from bringing the asset to its working condition; and
c. Costs of testing whether the asset is functioning properly.

 Examples of expenditures that are not part of the cost of an intangible asset
a. Costs of introducing a new product or service (including costs of advertising and promotional activities);
b. Costs of conducting business in a new location or with a new class of customer (including costs of staff
training); and
c. Administration and other general overhead costs.
d. Costs incurred while an asset capable of operating in the manner intended by management has yet to be
brought into use; and
e. Initial operating losses, such as those incurred while demand for the asset’s output builds up.

 Internally generated intangible assets

 To assess whether an internally generated intangible asset meets the criteria for recognition, an entity
classifies the generation of the asset into:
1. Research phase; and
2. Development phase.
 If an entity cannot distinguish the research phase from the development phase of an internal project to
create an intangible asset, the entity treats the expenditure on that project as if it were incurred in the
research phase only.
 Internally generated goodwill shall not be recognized as an asset.
 Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance
shall not be recognized as intangible assets.

 Research and development costs

 Charge all research cost to expense.
 Development costs are capitalized if, and only if, an entity can demonstrate all of the following:
1. The technical feasibility of completing the intangible asset so it will be available for use or sale.
2. Its intention to complete the intangible asset and use or sell it.
3. Its ability to use or sell the intangible asset.
4. The Intangible asset will generate probable future economic benefits. Among other things, the
entity can demonstrate the existence of a market for the output of the intangible asset or the
intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
5. The availability of adequate technical, financial and other resources to complete the development
and to use or sell the intangible asset.
6. Its ability to measure reliably the expenditure attributable to the intangible asset during its
development.
 If an entity cannot distinguish the research phase of an internal project to create an intangible asset from
the development phase, the entity treats the expenditure for that project as if it were incurred in the
research phase only.

 Recognition of an expense
 Expenditure on an intangible item shall be recognized as an expense when it is incurred unless:
a. It forms part of the cost of an intangible asset that meets the recognition criteria; or
b. The item is acquired in a business combination and cannot be recognized as an intangible asset. If this
is the case, it forms part of the amount recognized as goodwill at the acquisition date
 Other examples of expenditure that is recognized as an expense when it is incurred include:
 Expenditure on start-up activities (ie start-up costs), unless this expenditure is included in the cost of
an item of property, plant and equipment in accordance with IAS 16. Start-up costs may consist of
establishment costs such as legal and secretarial costs incurred in establishing a legal entity,
expenditure to open a new facility or business (i.e. pre-opening costs) or expenditures for starting new
operations or launching new products or processes (i.e. pre-operating costs).
 Expenditure on training activities.
 Expenditure on advertising and promotional activities (including mail order catalogues).
 Expenditure on relocating or reorganizing part or all of an entity.

 Measurement subsequent to acquisition: intangible assets with finite lives

 The cost less residual value of an intangible asset with a finite useful life should be amortized on a system-
atic basis over that life:
 The amortization method should reflect the pattern of benefits.
 If the pattern cannot be determined reliably, amortize by the straight line method.
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 The amortization charge is recognized in profit or loss unless another IFRS requires that it be included
in the cost of another asset.
 The amortization period should be reviewed at least annually.
 Amortization of an intangible asset is over its legal life or useful life whichever is shorter.
 The residual value of an intangible asset is presumed to be zero unless a third party is committed to buy
the intangible asset at the end of its useful life or unless there is an active market.

 Measurement subsequent to acquisition: intangible assets with indefinite useful lives

 An intangible asset with an indefinite useful life should not be amortized.
 Its useful life should be reviewed each reporting period to determine whether events and circumstances
continue to support an indefinite useful life assessment for that asset.
 The change in the useful life assessment from indefinite to finite should be accounted for as a change in an
accounting estimate.
 The asset should also be assessed for impairment in accordance with IAS36.

 Other accounting issues

 Legal fees for prosecuting or defending an intangible asset (patent, copyright, trademark), whether
successfully or unsuccessfully, shall be expensed.
 Cost of franchise includes the initial franchise fee plus directly attributable costs.
 Periodic payments made by the franchisee to the franchisor is considered as an outright expense.
 Leasehold improvement is classified as property, plant and equipment
 Service concession is accounted as an intangible asset if the operator receives a right to charge for use of a
public sector asset that it constructs or upgrades and then must operate and maintain for a specified period
of time. Service concession is accounted as a financial asset if the operator receives an unconditional con-
tractual right to receive a specified or determinable amount of cash or another financial asset from the gov-
ernment in return for constructing or upgrading a public sector asset, and then operating and maintaining
the asset for a specified period of time.
 Organization cost incurred in forming or organizing a business entity/corporation is expensed immediately.
 Internally developed computer software
 Costs incurred in creating the computer software shall be charged to expense until a technical
feasibility has been established.
 After technical feasibility, cost of coding and testing, and the cost to produce the product master shall
be charged to intangible asset.
 Cost incurred to actually produce the software from masters and package the software for sale shall be
charged to inventory.
 Purchased software is accounted as:
 Intangible asset is it is for licensing or rental to others
 Inventory if it is for sale
 Property, plant and equipment if for use and integral part to the hardware
 Website development costs
 When an entity is not able to demonstrate how a web site developed for promoting and advertising its
own products and services will generate probable future economic benefits, and consequently all
expenditure on developing such a web site shall be recognized as an expense when incurred. (SIC 32)

 Difference between Full IFRS and IFRS for SMEs

Full IFRS IFRS for SMEs
Internally generated intangible assets may be It does not allow for any internally generated
capitalized. intangible assets to be capitalized.
Initial measurement of intangible assets Initial measurement of intangible assets acquired by
acquired by way of a government grant shall be way of a government grant must be measured at fair
measured at fair value of the grant or at value.
nominal amount.
Revaluation model may be applied It does not permit the application of the revaluation
model to intangible assets.
Intangible assets may have indefinite useful life. It does not permit intangible assets to be classified as
No ten years presumed limit. an asset with an indefinite life. A useful life is required
to be established for all intangible assets, or it is
assumed to be 10 years.
The entity will review at each reporting date There is no requirement to review amortization
whether there has been a change in useful life, method, useful life and residual values at each
residual amount or amortization method. If reporting date.

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Full IFRS IFRS for SMEs

there is an indicator, this will be adjusted as a
change in estimate.

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Illustrative Problems

1. Defined by IAS38 as an identifiable non-monetary asset without physical substance.

A. Intangible asset C. Monetary asset
B. Goodwill D. Non-financial asset
2. Defined by IAS38 as the application of research findings or other knowledge to a plan or design for the
production of new or substantially improved materials, devices, products, processes, systems or services
before the start of commercial production or use.
A. Research and development C. Development
B. Research D. Process improvement
3. Defined by IAS38 as the original and planned investigation undertaken with the prospect of gaining new
scientific or technical knowledge and understanding.
A. Research and development C. Development
B. Research D. Process improvement
4. Defined by IAS38 as the estimated amount that an entity would currently obtain from disposal of the asset,
after deducting the estimated costs of disposal, if the asset were already of the age and in the condition
expected at the end of its useful life.
A. Carrying amount C. Entity-specific value
B. Fair value D. Residual value
5. Defined by IAS38 as the present value of the cash flows an entity expects to arise from the continuing use
of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
A. Carrying amount C. Entity-specific value
B. Fair value D. Residual value
6. Defined by IAS38 as the amount of cash or cash equivalents paid or the fair value of other consideration
given to acquire an asset at the time of its acquisition or construction, or, when applicable, the amount
attributed to that asset when initially recognized in accordance with the specific requirements of other
IFRSs.
A. Cost C. Carrying amount
B. Fair value D. Entity-specific value
7. Which is correct concerning the criterion of identifiability of an intangible asset?
I. An intangible asset is identifiable when it is separable, meaning, the asset could be sold, transferred,
licensed, rented or exchanged.
II. An intangible asset is identifiable when it arises from contractual or legal rights.
A. I only C. Both A and B
B. II only D. Neither A nor B
8. Which is incorrect concerning separate acquisition of an intangible asset?
A. If an intangible asset is acquired separately, the cost of the intangible asset can usually be measured
reliably.
B. The cost of an intangible asset comprises its purchase price and any directly attributable expenditure
on preparing the asset for its intended use.
C. If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal to the total
payments over the credit period.
D. If an intangible asset is acquired in exchange for a nonmonetary asset or a combination monetary and
nonmonetary asset, the cost is measured at fair value unless the exchange transaction lacks
commercial substance.
9. If the intangible asset is acquired by way of exchange of assets and the transaction lacks commercial
substance, the intangible asset shall be measured initially at
A. Fair value of the asset given C. Carrying amount of the asset given
B. Fair value of the asset received D. Carrying amount of the asset received
10. A trademark is acquired by issuance of the entity’s own ordinary shares, the trademark shall be measured
initially at
A. Carrying amount of the trademark C. Fair value of the ordinary shares
B. Par value of the ordinary shares D. Fair value of the trademark
11. Choose the incorrect statement.
A. Internally generated goodwill shall not be recognized as an intangible asset.
B. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance
should be not be recognized as intangible assets.

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C. The cost of internally generated intangible asset comprises all directly attributable cost necessary to
create, produce and prepare the asset for its intended use.
D. Costs incurred during research phase and development phase are capitalized to intangible asset.
12. Examples of directly attributable costs that are capitalized as cost of intangible assets least likely include
A. Costs of employee benefits (as defined in IAS19) arising directly from bringing the asset to its working
condition
B. Professional fees arising directly from bringing the asset to its working condition
C. Costs of conducting business in a new location or with a new class of customers
D. Costs of testing whether the asset is functioning properly.
13. The acquirer shall recognize __________ as the excess of the aggregate of the consideration transferred,
any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity
interest in the acquiree; and the net identifiable assets acquired.
A. Organization cost C. Business combination asset
B. Goodwill D. Non-monetary asset
14. Research activities do not include
A. Design, construction and testing of pre-production or pre-use prototypes and models
B. Activities aimed at obtaining new knowledge
C. Search for, evaluation and final selection of, applications of research findings or other knowledge
D. Formulation, design, evaluation and final selection of possible alternatives for new or improved
materials, devices, products, processes, systems or services.
15. Subsequent measurement of intangible asset includes
A. Cost model and fair value model C. Revaluation model and impairment model
B. Cost model and revaluation model D. Revaluation model and fair value model
16. Which of the following statements regarding impairment of intangible asset is false?
A. The amortization charge is recognized in profit or loss unless another IFRS requires that it be included
in the cost of another asset.
B. The amortization period should be reviewed at least annually.
C. Amortization of an intangible asset is over its legal life or useful life whichever is longer.
D. The residual value of an intangible asset is presumed to be zero unless a third party is committed to
buy the intangible asset at the end of its useful life or unless there is an active market.
17. Which of the following costs incurred for internally developed computer software is capitalized as cost of
the intangible asset?
A. Directly attributable cost incurred before a technical feasibility has been established.
B. Cost of coding, testing and cost to produce the product master after technological feasibility has been
established.
C. Cost incurred to actually produce and package the software from masters.
D. All of the foregoing.
18. An entity has two patents that have allegedly been infringed by competitors. After investigation, legal
counsel informed the entity that it had a weak case on patent P1 and a strong case regard to patent P2.
Patent P1 was unsuccessfully defended while patent P2 was successfully defended. Both patents have a
remaining legal life of 8 years. How should the entity account for these legal costs incurred relating to the
two patent?
A. Expensed for P1 and capitalized for P2 C. Capitalized for both P1 and P2
B. Expensed for both P1 and P2 D. Capitalized for P1 and Expensed for P2
19. Which of the following would most likely be capitalized as intangible asset?
A. Website development costs C. Internally generated brand, masthead, customer list
B. Organization costs D. Internally developed computer software
20. Which of the following should be expensed as incurred by the franchisee for a franchise with an estimated
useful life of ten years?
A. Amount paid to the franchisor for the franchise
B. Payment to a company, other than the franchisor, to obtain the franchise.
C. Legal fees paid to the franchisee’s lawyers to obtain the franchise.
D. Periodic payments to the franchisor based on the franchisee’s revenue.
21. A computer software purchased s an operating system for the hardware or as an integral part of a
computer controlled machine tool that cannot operate without the specific software should be treated as
A. Intangible asset C. Inventory
B. Property, plant and equipment D. Expense
22. The legal life of patent is
A. 20 years C. 10 years
B. 20 years, renewable for another 20 years D. 10 years, renewable for another 10 years
23. Dimatanaw Company exchanges the rights to distribute a product in Baliuag which have a carrying amount
of P2,000,000, for cash of P1,000,000 and the rights to distribute the same product in Bustos, with a fair

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value of P1,400,000. The exchange is considered having the necessary commercial substance. At the time
of exchange, the intangible asset should be initially recorded by Dimatanaw at
A. 1,000,000 C. 2,000,000
B. 1,400,000 D. 2,400,000
24. Dimakita Company purchases a trademark from an overseas company to manufacture items under the
trademark. Dimakita incurs the following costs in purchasing the trademark: Amount paid for the
trademark, P8,000,000; Import duties, P80,000; Legal fees (negotiating the deal and ensuring the term of
the trademark are fair), P100,000; Training costs (required by overseas company before the trademark can
be used), P20,000; Advertising new product, P30,000 and cost of registering the trademark (required in
terms of the agreement with supplier), P90,000. What amount should the trademark be initially recorded?
A. 8,180,000 C. 8,290,000
B. 8,270,000 D. 8,320,000
25. Dimahawakan Company purchased a patent on January 1, Year 1 for P428,400. The patent was being
amortized over its remaining legal life of 15 years. On January 1, Year 4, Dimahawakan determined that the
economic benefits of the patent would not last longer than 10 years from the date of acquisition. What
amount should be reported in the balance sheet as patent, net of accumulated amortization at December
31, Year 7?
A. 146,880 C. 244,800
B. 195,840 D. 302,400
26. On July 1, Year 1, Dimasalat Inc. signed an agreement to operate as a franchise of Tire Co. for an initial
franchise fee of P1,200,000. On the same date, Dimasalat paid P400,000 and agreed to pay the balance in
four equal payments of P200,000 beginning July 1, Year 2. The down payment is not refundable and no
future service are required of the franchisor. The company can borrow at 14% for a loan of this type. PV of
an ordinary annuity of 1 is 2.914 while PV of an annuity due of 1 is 3.322. What is the carrying value of the
franchise to be reported on December 31, Year 3 statement of financial position assuming the franchise
has a definite life of 20 years?
A. 859,950 C. 1,110,000
B. 982,800 D. 1,352,000
27. The R & D division of Dimaaninag Company undertakes both research and development activities of the
company. Its current development project on a prototype is near completion. The cost identified in this
project consists of the following:
Cost of materials used P5,000,000
Salaries of consultants for the projects 2,000,000
Fees to register trade designs 50,000
Amortization of the patent used in this project 100,000
Selling and administrative overheads allocated 1,000,000
Initial operating losses 500,000
Training costs to operate the asset __100,000
Total P8,750,000
The other costs that related to this project are the salaries of scientist and technicians (P1,200,000) and
depreciation of equipment used in the research and development activities (P900,000). Management
estimates that about one third of these costs relate to the development project. What amount of
development costs that should be capitalized as intangible asset?
A. 7,150,000 C. 8,250,000
B. 7,850,000 D. 8,750,000
28. Ditotoo Company incurred P1,500,000 to develop a computer software product. P400,000 of this amount
was expended before technological feasibility was established in early Year 1. The product will earn future
revenues of P4,000,000 over its 5-year life, as follows: Year 1 – P1,000,000; Year 2– P1,000,000; Year 3 –
P800,000; Year 4 – P800,000; and Year 5 – P400,000. The internally developed software is expressed as a
measure of revenue and it can be demonstrated that revenue and the consumption of economic benefits
of the intangible asset are highly correlated. What portion of the computer software costs should be
expensed in Year 1?
A. 220,000 C. 275,000
B. 620,000 D. 675,000
29. The owners of Invisible Co, are planning to sell the business to new interests. The cumulative net earnings
for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. Goodwill is
measured by capitalizing excess earnings at 25% with normal earnings at 20%. The fair value of net assets of
the entity at current year-end was P10,000,000. What is the goodwill from acquisition?
A. 6,400,000 C. 4,400,000
B. 4,000,000 D. 5,200,000
30. Abstract Co. was granted a patent on January 1, Year 1 and appropriately capitalized P4,500,000 of related
costs. The entity was amortizing the patent over the estimated useful life of 15 years. During Year 4, the
entity paid P1,500,000 in legal costs in successfully defending an attempted infringement of the patent. After
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the legal action was completed, the entity sold the patent to the plaintiff for P7,500,000. The policy is to take
no amortization in the year of disposal. What amount should be reported as gain from sale of patent?
A. 1,500,000 C. 2,700,000
B. 2,400,000 D. 3,900,000
31. On January 1, Year 1, Untouchable Co. purchased a patent from an original patentee for P2,400,000. The
remaining legal life of the patent is 15 years but the useful life is only 12 years. On January 1, Year 2 the entity
paid P550,000 in successfully defending the patent in an infringement suit filed against the entity. On January
1, Year 3, the entity acquired a competing patent for P1,500,000. The competing patent has a remaining legal
life of 15 years but it is not to be used because it was intended to protect the original patent. What is the
carrying amount of the patent on December 31, Year 3?
A. 3,150,000 C. 3,200,000
B. 3,600,000 D. 3,500,000
32. Obscure Co. incurred research and development costs in the current year as follows:
Equipment acquired for use in various research and development projects 975,000
Depreciation on the above equipment 135,000
Materials used 200,000
Compensation costs of personnel 500,000
Outside consulting fees 150,000
Indirect costs appropriately allocated 250,000
What is the research and development expense the current year?
A. 850,000 C. 1,235,000
B. 1,085,000 D. 1,285,000
33. Indeterminate Co. made the following expenditures relating to Product Zee:
Legal costs to file a patent on Product Zee. Production of the finished product would
have not been undertaken without the patent 100,000
Special equipment to be used solely for development of Product Zee. The equipment
has no other use and has an estimated useful life of four years 600,000
Labor and material costs incurred in producing a prototype model 2,000,000
Cost of testing the prototype 800,000
What total amount of costs should be expensed when incurred?
A. 2,800,000 C. 2,950,000
B. 3,400,000 D. 3,500,000
34. Unforeseeable Co. made the following expenditures during the current year:
Cost to develop computer software for internal use 1,000,000
Cost to market research activities 750,000
What amount should be reported as research and development expense?
A. 1,750,000 C. 750,00
B. 1,000,000 D. None
35. On January 1, Year 1, Incomprehensible Co. purchased a patent for a new customer product for P900,000.
At the time of purchase, the patent was valid for 15 years. However, the useful life was estimated to be only
10 years due to the competitive nature of the product. On December 31, Year 4, the product was
permanently withdrawn from sale under governmental order because of potential health hazard in the
product. What amount should be charged against income during Year 4, assuming amortization is recorded
at the end of each year?
A. 720,000 C. 540,000
B. 630,000 D. 90,000
36. On January 1, Year 3, Indeterminable Co. reported patent cost of P1,920,000 and related accumulated
amortization of P240,000. The patent was purchased on January 1, Year 1 at which date the remaining legal
life was 16 years. On January 1, Year 3, the useful life of the patent was determined to be only 8 years from
the date of acquisition. On January 1, Year 3, the entity paid P800,000, of which three-fourths was for
trademark, and one-fourth was for the other entity’s agreement not to compete for a five-year period in the
line of business covered by the trademark. The entity considered the life of the trademark indefinite.
Moreover, the entity agreed to pay P50,000 to the other entity as consulting fee each year for 5 years payable
every January 1. What is the amortization of intangible assets for Year 3?
A. 320,000 C. 250,000
B. 280,000 D. 370,000

- End of discussion

“Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you
are doing or learning to do.” Pele

Module 5 Page 8 of 8