INTANGIBLES

PROBLEMS

1. FLUX Company incurred P900,000 of research and development cost to develop a product for which a patent
was granted on January 2, 2005. Legal fees and other costs associated with the registration of the patent totaled
P200,000. On July 31, 2013, FLUX paid P400,000 for legal fees in a successful defense of the patent. The
total amount capitalized for this patent through July 31, 2013 should be
A. P1,500,000 C. P1,100,000
B. P 600,000 D. P 200,000

2. PATERNO Company acquired three patents in January 2013. The patents have different lives as indicated in
the following schedule:

Cost Remaining useful life Remaining legal life

Patent A 2,000,000 10 8
Patent B 3,000,000 5 10
Patent C 6,000,000 Indefinite 15

Patent C is believed to be uniquely useful as long as the company retains the right to use it. In June 2013, the
company successfully defended its right to Patent B. Legal fees of P800,000 were incurred in this action. The
company’s policy is to amortize intangible assets by the straight-line method to the nearest half year. The
company reports on a calendar-year basis. The amount of amortization that should be recognized for 2013 is:
A. P1,330,000 C. P1,250,000
B. P2,050,000 D. P 950,000

3. MAGDALO Company purchased a patent on January 1, 2010, for P3,570,000. The patent was being amortized
over its remaining legal life of 15 years expiring on January 1, 2025. During 2013 MAGDALO determined that
the economic benefits of the patent would not last longer than ten years from the date of acquisition. What
amount should be reported in the statement of financial position as patent, net of accumulated amortization, at
December 31, 2013?

A. P2,618,000 C. P2,520,000
B. P2,448,000 D. P2,142,000

4. On January 2, 2013, Klein Co. bought a trademark from Royce, Inc. for P300,000. An independent research
company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on
Royce’s books was P240,000. In Klein’s 2013 income statement, what amount should be reported as
amortization expense?
A. P30,000. C. P24,000.
B. P15,000. D. P12,000.

5. In 2012, Edwards Corporation incurred research and development costs as follows:

Materials and equipment P150,000

Personnel 180,000
Indirect costs 225,000
P555,000

These costs relate to a product that will be marketed in 2013. It is estimated that these costs will be recouped
by December 31, 2015. The equipment has no alternative future use. What is the amount of research and
development costs that should be expensed in 2012?
A. P 0. C. P330,000.
B. P405,000. D. P555,000.

6. Hall Co. incurred research and development costs in 2013 as follows:

Materials used in research and development projects P 540,000

Equipment acquired that will have alternate future uses in future research
and development projects 3,600,000

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 Depreciation for 2013 on above equipment 360,000
Personnel costs of persons involved in research and development projects 660,000
Consulting fees paid to outsiders for research and development projects 180,000
Indirect costs reasonably allocable to research and development projects 270,000
P5,610,000

The amount of research and development costs charged to Hall's 2013 income statement should be
A. P1,560,000. C. P1,740,000.
B. P2,010,000. D. P4,620,000.

7. Martin Inc. incurred the following costs during the year ended December 31, 2013:

Laboratory research aimed at discovery of new knowledge P200,000

Costs of testing prototype and design modifications 45,000
Quality control during commercial production, including routine testing
of products 270,000
Construction of research facilities having an estimated useful life of
5 years but no alternative future use 400,000

The total amount to be classified and expensed as research and development in 2013 is
A. P595,000. C. P915,000.
B. P645,000 D. P325,000.

8. Gomez Corp. incurred P350,000 of research and development costs to develop a product for which a patent was
granted on January 2, 2008. Legal fees and other costs associated with registration of the patent totaled
P100,000. On March 31, 2013, Gomez paid P150,000 for legal fees in a successful defense of the patent. The
total amount capitalized for the patent through March 31, 2013 should be
A. P250,000. C. P450,000.
B. P500,000. D. P600,000.

9. On June 30, 2013, Dax, Inc. exchanged 6,000 shares of Trane Corp. P30 par value common stock for a patent
owned by Gore Co. The Trane stock was acquired in 2013 at a cost of P160,000. At the exchange date, Trane
common stock had a fair value of P45 per share, and the patent had a net carrying value of P320,000 on Gore's
books. Dax should record the patent at
A. P160,000. C. P180,000.
B. P270,000. D. P320,000.

10. On May 5, 2013, Pitts Corp. exchanged 6,000 shares of its P25 par value treasury common stock for a patent
owned by Denson Co. The treasury shares were acquired in 2012 for P135,000. At May 5, 2013, Pitts' common
stock was quoted at P32 per share, and the patent had a carrying value of P165,000 on Denson's books. Pitts
should record the patent at
A. P135,000. C. P150,000.
B. P165,000. D. P192,000.

11. Ely Co. bought a patent from Backo Corp. on January 1, 2013, for P180,000. An independent consultant
retained by Ely estimated that the remaining useful life is 30 years. Its unamortized cost on Backo's accounting
records was P90,000; the patent had been amortized for 5 years by Backo. How much should be amortized for
the year ended December 31, 2013?
A. P 0. C. P 3,000.
B. P6,000. D. P12,000.

12. January 2, 2010, Koll, Inc. purchased a patent for a new consumer product for P270,000. 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, 2013, the product was permanently withdrawn
from sale under governmental order because of a potential health hazard in the product. What amount should
Koll charge against income during 2013, assuming amortization is recorded at the end of each year?
A. P 27,000 C. P162,000
B. P189,000 D. P216,000

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13. On January 1, 2009, Watts Company purchased a copyright for P600,000, having an estimated useful life of 16
years. In January 2013, Watts paid P90,000 for legal fees in a successful defense of the copyright. Copyright
amortization expense for the year ended December 31, 2013, should be
A. P 0. C. P37,500.
B. P43,125. D. P45,000

14. Dumalag Company provided the following information relevant to the research and development expenditures
for the year 2013:

Current period depreciation on the building housing R and D activities 1,500,000

Cost of market research study 1,000,000
Current period depreciation on a machine used in R and D activities 500,000
Salary of R and D director 1,200,000
Salary of Vice-President who spends ¼ of his time overseeing
R and D activities 2,400,000
Pension costs for salary of R and D director 50,000
Pension costs for salary of Vice-President 100,000

The R and D expense for the current period should be

A. P3,875,000 C. P4,875,000
B. P5,750,000 D. P3,800,000

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