1. The following items are included in a single Intangible Account of PUREGOLD Inc.

as of December 31, 2014:

Investment in an Associate Company P1,000,000

Agricultural Land 2,000,000
Research and development costs 200,000
Initial Operating Losses 300,000
Organization costs in forming corporation 100,000
Internally generated goodwill 200,000
Cost of purchasing a trademark 300,000
Operating software of a personal computer 200,000
Long-term receivables 100,000
Cost of developing a trademark 500,000
Computer software for a computer-controlled machine that cannot operate without the software 100,000
Legal costs incurred in securing a patent 200,000
Purchase price of a franchise 300,000
Lease prepayments 300,000
Engineering follow through during production 200,000
Cost of equipment obtained under a finance lease 300,000

What is the total costs that shall be capitalized as intangible asset as of December 31, 2014?

2. The following items are included in a single account of INVENTOR INC. as of December 31, 2014:

Internally generated mastheads P 200,000

Cost of purchased customer lists 400,000
Internally generated brand 300,000
Cost of purchased publishing titles 200,000
Training costs incurred in start-up operation 100,000
Goodwill from business combination 300,000
Cost of testing in search for product alternatives 500,000
Cost of developing a software before technical feasibility 100,000
Cost of purchasing a patent from an investor 200,000
Legal costs in successful defense of a patent 150,000
Legal costs in unsuccessful defense of a patent 100,000
Cost of conceptual formulation of possible product alternatives 200,000
Cost of purchasing a copyright 300,000
Infrastructure asset when the concession operator has received a right, not a license, to charge users
for the public service and the revenue receivable is not agreed upon in advance 1,000,000
Infrastructure asset when the concession operator has a guaranteed contractual right to receive
a specific amount of cash over the life of the arrangement 2,000,000

What is the total costs that shall be capitalized as intangible asset as of December 31, 2014?

3. On January 1,2014, APPLE Inc. decided to develop a new application known as “TOUCHY”. In 2014, the software developer incurred
the following costs in the process of designing, developing and producing the new application:

Salaries and wages of programmers doing research P1,500,000

Designing and planning the Operating System 500,000
Code Development 200,000
Testing the Operating System 300,000

On January 1,2015, the technological feasibility of the application has been established. On the same date, the company incurred
P20,000,000 as the total cost of production of product master. The production of the software started on February 1,2015 and the product
was marketed on the same date. The total costs of produced and prepared application for sale is P10,000,000. The total sales of TOUCHY
during 2015 is P12,000,000. The normal gross profit rate of Microsoft Inc. is 50%. Microsoft estimated that the total sales revenues over
the 5-year life of the product will be P50,000,000.

What is the amount that shall be capitalized as software development cost – intangible asset?

4. Using the same data in number 3, what is the amount of total research and development costs that shall be expensed?
5. During 2014, the following costs are incurred by ECE Inc. in connection with its research and development of a new equipment which
it was able to register in the Patent Office:

Research and development laboratory expenses P5,000,000

Salary of Research Engineer who work on the research, development and building of
the equipment (40% of the time was spent in actually building the equipment) 1,000,000
Materials used in the construction of the equipment 400,000
Blueprints used to design the equipment 300,000
Legal expenses to register and obtain the patent 200,000
Expense of drawing required by Bureau of Patents to be submitted in patent application 100,000
Fees paid to Bureau of Patents to process application 50,000
Useful life of the Patent as estimated by the engineers 25 years

On January 1, 2015, ECE Inc. was sued by EE inc. for patent infringement. ECE Inc. prevailed and incurred P500,000 to defend the
patent. It is ECE’s policy to take full year’s amortization of the patent on the date of acquisition.

What is the total cost that shall be capitalized as patent?

6. Using the same data in number 2, what is the carrying value of the patent on December 31, 2015?

7. On January 1, 2014, the following transactions occurred for BK Inc:

a. It acquired a trademark of GUESS for P20,000,000.
b. It developed a trademark known as KISS and incurred P10,000,000 for the research and development.
Note: In the Philippines, the registered trademark has a legal life of 10 years and renewable after its expiration.

What is the carrying value of trademark as of December 31, 2014?

8. ELF Inc. has the following transactions on January 1, 2014:

a. It acquired a customer list by issuing 10,000 of its ordinary shares with P10 par value and quoted at local exchange at P15. The fair
value of the customer list is P200,000. Its useful life is 5 years and legal life of 10 years.
b. It incurred organization costs totaling P50,000 and stock issuance cost of P30,000 during the formation of the corporation.
c. It purchased a franchise by issuing a bonds payable with face value of P1,000,000 and trading at 110. The fair value of the franchise
is P1,500,000. The franchise requires a contingent franchise fee of 10% of total sales of ELF. During 2014, ELF’s sales totaled
P2,000,000. The useful life of the franchise is 20 years.
d. It incurred P200,000 for internally generated brands and mastheads which has useful life of 4 years.

What is the carrying value of total intangible assets on December 31, 2014?

9. DIG Inc. has developed a computer software on January 1, 2014. It has a useful life of 5 years. The capitalizable cost of the computer
software is P2,000,000. The total sales of the computer software for the five-year period is estimated at P20,000,000. During 2014, the
total sales amounted to P5,000,000.

What is the carrying value of the computer software on December 31, 2014?

10. On January 1, 2014, WISE Inc. acquired a patent with for P10,000,000 with remaining useful life of 5 years and remaining legal life
of 10 years. On December 31, 2014, WISE was sued by a competitor on alleged patent infringement. WISE prevailed in the case and
incurred litigation costs in successfully defending the patent in the amount of P2,000,000. On July 1, 2016, WISE sold the patent for
P5,000,000 and incurred P500,000 disposal cost.

What is the carrying value of the patent on December 31, 2015?

11. Using the same data in number 6, what is the gain/(loss) on patent disposal to be recognized by WISE?

12. Fox Inc.’s pretax accounting income for the year 2010 was P1,275,000 and included the following items:
Impairment of goodwill P 90,000
Amortization of identifiable intangibles 85,500
Depreciation on building 120,000
Loss from fire 66,000
Gain on sale of machinery 225,000
Profit-sharing payments to employees 97,500
AXN is planning to purchase Fox Inc. In attempting to measure Fox’ normal earnings for 2010, AXN determined that the fair value of the
building is triple the carrying amount and that the remaining economic life is double that used by Fox. AXN would continue the profit-
sharing payments to employees; such payments are based on income before depreciation and amortization.
What is the normal earnings to be used for computing goodwill?

13. The net assets of Ace Inc. excluding goodwill totaled P2,400,000 and earnings for the last 5 years totaled P2,670,000. Included in
the latter figure are gain on sale of equipment P225,000, typhoon loss of P120,000 and sales commission of P45,000. In developing a
sales price for the business a 14% return on the net worth is considered normal for the industry, and the annual excess earnings are to
be capitalized at 20% in arriving at goodwill.

What is the amount of goodwill?

14. Art Inc. is considering acquiring Lay Inc. in total. Art makes the following computations and conclusions:

 The fair value of the identifiable assets of Lay Inc, is P3,600,000.

 The liabilities of Lay Inc. are P1,900,000.
 A fair estimate of the annual earnings for the indefinite future is P600,000 per year.
 Considering the risk and potential of Lay Inc., Art feels that it must earn a 25% return on its investment.

What is the amount of goodwill?

15. As the CEO of LOL Inc., you are considering purchasing OMG Inc. whose statement of financial position is summarized below:

Current assets P1,500,000 Current liabilities P1,500,000

Fixed assets, net 3,500,000 Long-term debt 2,500,000
Other assets 1,500,000 Share capital 2,000,000
___ Retained earnings 500,000
P6,500,000_ P6,500,000_

The fair value of current assets is P2,750,000 because of the undervaluation of inventory. The normal rate of return on net assets or the
industry is 15%. The average expected annual earnings projected for OMG Inc. is P700,000. Excess earnings will continue for 5 years.
You are considering the present value method to compute the estimated goodwill. (Use 4 decimal places for present value factors)

What is the amount of goodwill?