UNIVERSITY OF SANTO TOMAS
UST - ALFREDO M. VELAYO COLLEGE OF ACCOUNTANCY
SECOND TERM, ACADEMIC YEAR 2023-2024
ACC51110 – INTEGRATED REVIEW IN FINANCIAL ACCOUNTING AND
REPORTING
ACCOUNTING FOR INTANGIBLE ASSETS
1. An entity reported the following data at yearend:
Franchise P1,000,000
Computer software 1,500,000
Deferred charges 100,000
Patent 2,500,000
Cost of brand name acquired separately 500,000
Copyright 700,000
Deposit with ad agency to promote goodwill 400,000
Bond sinking fund 1,300,000
Trademark 900,000
Research and development cost 2,000,000
Goodwill arising from acquisition of a subsidiary 4,000,000
What total amount should be reported as intangible assets?
a. P13,100,000
b. P11,500,000
c. P11,100,000
d. P10,600,000
2. In 2024, a production company started to generate a patent for its special product. The
following costs were incurred after the entity was able to demonstrate the technical
feasibility of completing the intangible asset:
Cost of materials and services used and consumed P 50,000
Cost of employee benefits 250,000
Fees to register a legal right 800,000
Amortization of license used to generate the patent 50,000
General overhead expenditures 150,000
What is the capitalizable cost of the patent?
a. P800,000
b. P850,000
c. P1,150,000
d. P1,300,000
3. A company purchased a patent on January 1, 2021 for P4,500,000. The patent was being
amortized over its remaining legal life of 15 years. During 2024, the company determined
that the economic benefits of the patent would not last longer than 12 years from the date
of acquisition. What amount should be reported in the statement of financial position as
patent, net of accumulated amortization, on December 31, 2024?
a. P3,000,000
b. P3,200,000
c. P3,300,000
d. P3,600,000
4. A company incurred P100,000 of research and development costs to develop a product for
which a patent was granted on January 1, 2022. Legal fees and other costs associated with
registration of the patent totaled P300,000. The patent is being amortized over its legal life.
On July 1, 2024, the company won and paid legal fees of P80,000 for the successful defense
of the patent against an infringement lawsuit filed by another company. How much is the
carrying value of the patent on December 31, 2024?
a. P255,000
b. P248,800
c. P262,500
d. P335,000
5. How much is the total expenses for the year 2024 assuming the company did not win the
lawsuit?
a. P80,000
b. P262,500
c. P87,500
d. P350,000
6. On December 31, 2023, a company acquired the following intangible assets:
• A trademark for P2,000,000. The trademark has 8 years remaining legal life. It is
anticipated that the trademark will be renewed in the future, indefinitely, without
problem.
• A patent for P4,000,000. Because of market conditions, it is expected that the patent
will have economic life for just 5 years, although the remaining legal life is 10 years.
Because of a decline in the economy, the trademark is now expected to generate cash flows
of just P120,000 per year. The useful life of the trademark still extends beyond the
foreseeable horizon. The cash flows expected to be generated by the patent are P500,000
annually for each of the next years. The appropriate discount rate for all intangible assets
is 8%. The present value of 1 at 8% for four periods is 0.74 and the present value of an
ordinary annuity of 1 at 8% for four periods is 3.31. The company shall recognize a total
impairment loss in 2024 at
a. P2,845,000
b. P2,045,000
c. P1,980,000
d. P1,545,000
9. On January 1, 2024, a company obtained a franchise from a famous fast-food chain to sell
for 20 years the fast-food’s products. The initial franchise fee as agreed upon shall be
P6,000,000: payable in cash of P1,000,000 when the contract is signed and the balance in
four equal installments, thereafter, as evidenced by a non-interest-bearing note. The
prevailing interest rate for this type of note is 12%. The agreement provides that the
franchisor shall provide the necessary initial services required under a franchise contract.
The agreement also provides that 5% of the revenue from the franchise must be paid to the
franchisor. Revenue from the franchise for 2024 was P5,000,000. How much is the total
amount charged against revenues for the year 2024?
a. P458,875
b. P239,831
c. P945,426
d. P489,831
10. In 2023, a company purchased a patent for P375,000. The estimated useful life of the patent
was 10 years. On January 1, 2024, the company determined that the remaining useful life
of the patent was only five years. On January 1, 2024, the company also purchased a
franchise for P3,125,000. The franchise contract provided a continuing franchise fee of 5%
of revenue. The estimated useful life of the franchise was 10 years. Towards the middle of
2024, the company incurred research and development expense as follows:
Materials and supplies used in research P 100,000
Equipment which will be used in other research
projects (estimated useful life was five years) 500,000
Research salaries 700,000
Indirect costs 300,000
The company generated a revenue of P5,000,000 in 2024. It is the company’s policy to take
one-half year of depreciation and amortization both in the year of acquisition and disposal.
What total amount should be charged to profit or loss in 2024?
a. P1,627,500
b. P1,673,750
c. P1,677,500
d. P1,830,000
11. In January 2024, a company entered into a franchise contract with the government to operate
a toll road until the cumulative amount of tolls generated from operating the road reaches
P10,000,000. The cost of the franchise was P3,000,000. In 2024, the company recorded
P1,800,000 revenue from tolls. What is the amortization expense in 2024?
a. P0
b. P540,000
c. P1,800,000
d. P3,000,000
12. A company incurred research and development costs in the current year as follows:
Equipment acquired use in various research and development projects. P975,000
Depreciation on the above equipment 135,000
Materials used 200,000
Compensation costs of personal 500,000
Outside consulting fees 150,000
Indirect costs appropriately allocated 250,000
The total research and development costs in the company’s income statement for the current
year should be
a. P850,000
b. P1,085,000
c. P1,235,000
d. P1,825,000
13. A company provided the following information regarding its research project included in
the company’s Intangible Assets account as of December 31, 2024:
Salaries of research staff P18,000
Patent acquired solely for the use in the project 12,000
Special equipment acquired and useful for various similar research
activities 10,000 /5 yr
:
2 , 000
Patent acquired for use in several research projects including this
project 16,000 /598 = 3 , 200
The equipment and patents have been found to be useful for approximately five years. You
have further discovered both patents and the equipment were acquired at the beginning of
2024. How much should be recognized as research and development expense for the year
2024?
a. P56,000
b. P18,000
c. P35,200
d. P0
14. A company provided you the following information pertaining to its Research and
Development activities for the year 2024:
Searching for applications of new research findings P 57,000
Troubleshooting in connection with breakdowns during commercial
production 87,000
Adaptation of an existing capability to a particular requirement or
customer’s need as a part of continuing commercial activity 39,000
Engineering follow-through in an early phase of commercial
production 45,000
Laboratory research aimed at discovery of new knowledge 204,000
Design of tools, jigs, and molds involving new technology 72,000
Quality control during commercial production, including routine
testing of products 174,000
Testing in search for product or process alternative 300,000
Design and construction of preproduction prototype and model 384,000
Routine and on-going efforts to refine, enrich, or otherwise, improve
upon the qualities of an existing product 750,000
What is the total amount to be classified and expensed as research and development for
2024?
a. P1,095,000
b. P1,017,000
c. P456,000
d. P561,000
15. On January 1, 2024, a company engaged your services to compute the goodwill in the purchase
of another entity which provided the following:
Net income Net assets
2021 P2,000,000 P7,800,000
2022 2,500,000 8,700,000
2023 3,900,000 9,000,000
1 , 700 000
000/3
,
2 , 800 , 000 20 % =
000/3 000 x
, 400
8 ,
=
25 ,500 ,
=
8500 ,
Goodwill is measured by capitalizing excess earnings at 25% with normal return on average
net assets at 20%. How much is the purchase price for the other entity?
a. P13,400,000 2 800 006 ,
pp 13 400 000 , ,
b. P12,800,000
,
( 700 000)
1 ,
,
FUNA 9000 00
c. P11,800,000 1 100 000 = 25 4 400 000
, Gu 4 400 000
=
, , ,
,
d. P10,700,000
16. Which is incorrect concerning the recognition and measurement of an intangible asset?
a. If an intangible asset is acquired separately, the cost comprises its purchase price, including
import duties and taxes and any directly attributable expenditure of preparing the asset for
its intended use.
b. If an intangible asset is acquired in a business combination that is an acquisition, the cost
is based on its fair value at the date of acquisition.
c. If an intangible asset is acquired free of charge or by way of government grant, the cost is
equal to its fair value.
d. If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal
to the total payments over the credit period.
17. Which one of the following is not a component of the cost of internally generated intangible
asset?
a. Cost of materials and services used or consumed in generating the intangible asset
b. Cost of employee benefits arising from the generation of the intangible asset
c. Fees to register a legal right
d. Expenditure on training staff to operate the asset
18. Which statement is incorrect concerning internally generated intangible asset?
a. To assess whether an internally generated intangible asset meets the criteria for recognition,
an enterprise classifies the generation of the asset into a research phase and a development
phase.
b. The cost of an internally generated asset comprises all directly attributable costs necessary
to create, produce and prepare the asset for its intended use.
c. Internally generated brands, mastheads, publishing titles, customer lists and items similar
in substance should not be recognized as intangible assets.
d. Internally generated goodwill may be recognized as an intangible asset.
19. An entity shall choose either the cost model or revaluation model as its accounting policy in
measuring intangible asset. Which statement is correct?
I. The cost model means that an intangible asset shall be carried at cost less any
accumulated amortization and any accumulated impairment loss.
II. The revaluation model means that an intangible asset shall be carried at revalued
amount less any subsequent accumulated amortization and any subsequent
accumulated impairment loss.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
20. In relation to amortization of intangible assets, if an intangible asset has a finite useful life
a. It must be amortized over a period not exceeding 40 years
b. It must be amortized across a period not exceeding 5 years
c. It is not subject to an annual amortization charge
d. It must be amortized over that life
21. In relation to amortization of intangible assets, PAS 38 Intangibles, requires that intangible
asset with indefinite useful lives
a. Are amortized by the straight-line method across their useful lives
b. Must be amortized across a period of no more than 20 years
c. Are not subject to an amortization charges
d. Should not be amortized in a period in which maintenance of the asset occurs
22. The appropriate method of amortizing intangible asset is best described by which of the
following?
a. The straight-line method, unless the pattern in which the asset’s economic benefits are
consumed by the enterprise can be determined reliably
b. The double declining balance in all circumstances
c. Management can make a subjective amount of periodic amortization without regard to any
particular method
d. The straight-line method in all circumstances
23. If a company constructs a laboratory building to be used as a research and development facility,
the cost of the laboratory building is matched against earnings as
a. Research and development expense in the period of construction
b. Depreciation deducted as part of research and development cost
c. Depreciation or immediate write-off depending on company policy
d. An expense at such time as productive research has been obtained from the facility
24. A research and development activity for which the cost should be expensed as incurred is
a. Engineering follow-through in early phase of commercial production
b. Design, construction, and testing of preproduction prototypes and models
c. Trouble shooting in connection with breakdowns during commercial production
d. Periodic design changes to existing products
25. The proper accounting for the costs incurred in creating computer software products is to
a. Capitalize all costs until the software is sold.
b. Charge research and development expense when incurred until technological feasibility
has been established for the product.
c. Charge research and development expense only if the computer software has alternative
future use.
d. Capitalize all costs as incurred until a detailed program design or working model is created.
END OF HANDOUT
