Raven Company developed a trademark to distinguish its products from those of the competitors.

Marketing research to study consumer tastes 400,000

Desing cost of trademark 1,500,000

Legal fee of registering trademark 150,000

Advertising to establish recognition of trademark 200,000

Registration fee with Intellectual Property Office 50,000

What amount should be capitalized as cost of trademark?

a. 1,700,000
b. 1,900,000
c. 2,300,000
d. 2,100,000

Royal Company purchased a trademark and incurred the following costs.

Purchase price 1,000,000

Nonrefundable value added tax 50,000

Training of personnel on the use of new trademark 70,000

Research expenditures associated with the purchase

Of the new trademark 240,000

Legal cost incurred to register the new trademark 105,000

Administrative salaries 120,000

What is the initial cost of the trademark?

a. 1,000,000
b. 1,155,000
c. 1,465,000
d. 1.585,000

On January 1, 2016, Hart Company signed an agreement to operate as a franchise of Ace Company for
an initial franchise fee of P12,000,000.

The same date, Hart Company paid P4,000,000 and agreed to pay the balance in four equal annual
payments of P2,000,000 beginning January 1, 2017.

Hart Company can borrow at 14% for a loan of this type. The present value factors at 14% are as follows:
Present value of 1 at 14% for four periods 0.29

Present value of an ordinary annuity of 1 at 14% for four periods 2.91

What is the acquisition cost of the franchise?

a. 13,520,000
b. 12,000,000
c. 9,820,000
d. 8,720,000

Mark Company bought a franchise at the beginning of current year for P2,040,000. An independent
consultant estimated that the remaining useful life of franchise was 50 years.

This unamortized cost of the franchise was P680,000. The entity decided to amortize the franchise over
maximum period allowed.

What amount should be recorded as amortization of franchise for the current year?

a. 40,800
b. 40,000
c. 51,000
d. 17,000

Car Company recently acquired a copyright that now has remaining legal life of 40 years. The copyright
initially had a 30-year useful life. An analysis of market trend and consumer habit indicated that the
copyrighted material will generate positive cash flows for approximately 25 years.

What is the remaining useful life over which the entity can amortize the copyright?

a. 25
b. 30
c. 40
d. 0

Vanity Company showed the following balances at year-end:

Copyright 500,000

Deposit with advertising agency used agency used to promote goodwill 400,000

Bond Sinking Fund 1,000,000

Excess of cost over fair value of identifiable net assets

Of acquired subsidiary 4,000,000

Trademark 900,000

What total amount should be reported as intangible assets?

a. 1,400,000
b. 4,500,000
 c. 5,400,000
d. 5,800,000

Alcatraz Company paid P5,000,000 to purchase intangible assets with the following fair value:

Internet domain name 1,500,000

Order backlog 1,200,000

In-process research and development 2,400,000

Operating permit 900,000

In addition, the entity spent P2,000,000 to run an advertising campaign to boosts its image in local
community.

What amount should be recognized as cost of the in-process research and development?

a. 2,400,000
b. 2,000,000
c. 2,800,000
d. 0

Tobin Company incurred P1,600,000 of research and development costs to develop a product for which
a patent was granted at the beginning of current year.

Legal fees and other costs associated with registration of the patent totaled P300,000. At year-end, the
entity paid P450,000 for legal fees in successful defense of the patent

What is the total amount that should be capitalized for the patent at year-end?

a. 750,000
b. 300,000
c. 2,050,000
d. 2,350,000

On January 1,2013, Lava Company purchased a patent for a new consumer product for P900,000. At the
time of purchase, the patent was valid for 15 years.

However, the useful life of the patent was estimated to be only 10 years due to the competitive nature
of the product.

On December 31,2016, the product was permanently withdrawn from sale under governmental order
because of a potential health hazard in the product.

What amount should be charged against income in 2016 if amortization is recorded at the end of each
year?
a. 90,000
b. 540,000
c. 630,000
d. 720,000

Iceberg Company purchased a patent on January 1, 2011 for P6,000,000. The original useful life was
estimated to be 15 years.

However, in December 2016, the management received information proving conclusively that the
product protected by the Iceberg patent would be obsolete within four years.

Accordingly, the entity decided to write off the unamortized cost of the patent over five years beginning
in2016.

What is the patent amortization for 2016?

a. 1,200,000
b. 1,000,000
c. 800,000
d. 400,000

Northstar Company acquired a registered trademark for P600,000. The trademark has a remaining legal
life of five years but can be renewed every 10 years for a nominal fee. The entity was expected to renew
the trademark indefinitely.

What amount of amortization expense should be recorded for the trademark in the current year?

a. 120,000
b. 15,000
c. 40,000
d. 0

An intangible asset is defined as

a. An identifiable asset without physical substance

b. A nonmonetary asset without physical substance
c. An identifiable nonmonetary asset without physical substance
d. An identifiable monetary and nonmonetary asset without physical substance

An intangible asset is identifiable when

a. It is separable
b. It arises from contractual and other legal right.
c. It is either separable or it arises from contractual and other legal right.
d. It is neither separable nor it arises from contractual and other legal right.

An intangible asset shall be recognized if

 a. It is probable that future economic benefits attributable to the asset will flow to the entity
b. The cost of the intangible asset can be measured reliably.
c. It is possible that future economic benefits attributable to the asset will flow to the entity and
the cost of the intangible asset can be measured reliably.
d. It is probable that future economic benefits attributable to the asset will flow to the entity and
the cost of the intangible asset can be measured reliably.

The cost of an internally generated asset includes all of the following, except

a. Cost of materials and services used in generating the intangible asset.

b. Compensation costs of personnel directly engaged in generating the asset.
c. Fees to register a legal right.
d. Expenditure on training staff to operate the asset.

All of the following expenditures shall be expensed when incurred, except

a. Start up costs
b. Advertising and promotion costs
c. Business relocation or reorganization costs
d. Payment in advance of delivery of goods or the rendering of services

It is the systematic allocation of the amortizable amount of an intangible asset over the useful life

a. Amortization
b. Allocation
c. Realization
d. Expiration

The amortization method shall reflect the pattern in which the economic benefits from the asset are
consumed by the entity. If such pattern cannot be determined reliably, what amortization method
should be used?

a. Straight line method

b. Production method
c. Diminishing balance method
d. Ratio of current year’s sales to the total expected sales

The residual value of an intangible asset with a finite useful life shall be assumed zero, except

a. When there is a commitment by a third party to purchase the asset at the end of the useful life
b. When there is an active market for the asset and it is probable that such market will exist at the
end of the useful life.
c. When there is a commitment by a third party to purchase the asset at the end of the useful life
or when there is an active market for the asset and it is probable that such market will exist at
the end of the useful life.
 d. There are no exceptions.

Which of the following would qualify as an intangible asset?

a. Advertising and promotion

b. Tuition fees paid to employees who decide to enroll in an MBA program while working with the
entity
c. Operating losses during the initial stage of the project
d. Legal costs paid to lawyers to register a patent