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INTANGIBLE ASSETS
DARRELL JOE O. ASUNCION, CPA, MBA

INTANGIBLE ASSETS
DARRELL JOE O. ASUNCION, CPA MBA

INTANGIBLE ASSETS

I. Definition of intangible asset- is an IDENTIFIABLE nonmonetary asset without physical substance.

The standard further states that the intangible asset must be CONTROLLED by the enterprise as a result of past event
and from which FUTURE ECONOMIC BENEFITS are expected to flow to the enterprise.
II. Recognition of an intangible asset
An intangible asset shall be recognized if the following conditions are met:
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.
III. An intangible asset should be measured initially at cost. The cost of an intangible asset will depend on the
following:
a. Separate acquisition
b. Acquisition as part of business combination
c. Acquisition by way of government grant
d. Acquisition by exchange

Separate acquisition
a. Acquired separately Purchase price including import duties and nonrefundable purchase taxes, and any directly
attributable expenditure on preparing the asset for its intended use, such as legal fees.
b. Deferred beyond Cash price equivalent. Cash price minus total payments=disc on NP (to be amortized as
normal credit terms interest expense.)
c. In exchange for equity fair value of the equity instruments (which is equal to the fair value of intangible asset)
instruments

Acquisition as part of business combination

The cost of an intangible asset acquired as part of a business combination should be assessed at its fair value at the
acquisition date.

Acquisition by government grant

This may occur when a government transfers or allocates to an enterprise intangible assets such as:
a. Airport land RIGHTS
b. LICENSES to operate radio or television stations.
c. Import LICENSES or quotas or RIGHTS to access restricted resources.

Acquisition by exchange
-cost of such intangible asset is measured at the fair value unless the exchange transaction lacks commercial substance.
If the exchange transaction lacks commercial substance, the acquired intangible asset is not measured at fair value but
its cost is the carrying amount of the asset given up.

Internally generated intangible asset

The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce
and prepare the asset to be capable of operating it in the manner intended by management.
Examples of directly attributable costs are:
a. Cost of materials and services used or consumed in generating the intangible asset.
b. Costs of an employee benefits arising from the generation of the intangible asset.
c. Fees to register a legal right.
d. Amortization of patents and licenses that are used to generate the intangible asset.

However, the following expenditures are not components of the cost of an internally generated intangible assets.
a. Selling, administrative and other general overhead, unless this expenditure can be directly attributed to preparing
the asset for use.
b. Clearly identified inefficiencies and initial operating losses incurred before an asset achieves planned
performance.
c. Expenditure on training staff to operate the asset.

REO CPA REVIEW PHILIPPINES

1 CPA REVIEW SEASON
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INTANGIBLE ASSETS
DARRELL JOE O. ASUNCION, CPA MBA

Internally generated intangible asset are capitalized as intangible asset except:

BMCP
1. internally generated BRANDS
2. MASTHEAD
3. CUSTOMER lists and items similar in substance
4. PUBLISHING titles

Subsequent expenditure
As a rule, a subsequent expenditure on an intangible asset shall be recognized as expense. However the subsequent
expenditure may be capitalized or added to the cost of the intangible asset if the following recognition criteria for an
intangible asset are met:
a. It is probable that future economic benefits that are attributable to the subsequent expenditure will flow to the entity.
b. The subsequent expenditure can be measured reliably.

IV. Example of Intangible Assets

a. Identifiable intangible asset
i. Patent
ii. Copyright
iii. Franchise
iv. Trademark or brandname
v. Leasehold or lease rights
vi. Computer software
vii. Finishing rights and other specific rights

V. Measurement after recognition

a. Cost model-an intangible asset should be carried at cost, less any accumulated amortization and any
accumulated impairment loss.
b. Revaluation model- an intangible asset should be carried at revalued amount, which is equal to its fair
value at the date of revaluation, less any subsequent amortization and any subsequent accumulated
impairment loss.

VI. Amortization is the systematic allocation of the cost or revalued amount of an intangible asset, less any
residual value, as an expense over the asset’s useful life. The entry to record the amortization of an intangible
asset is:
Amortization expense XX
Intangible asset XX
(Accumulated amortization may be maintained.)
1. Intangible assets with limited or finite life are amortized over their useful life.
2. Intangible asset with indefinite life are not amortized but are tested for impairment at least annually
whenever there is an indication that the intangible asset may be impaired.

VII. Amortization period- The depreciable amount of an intangible asset should be amortized on a systematic
basis over its expected useful life. Amortization should start when the asset is available for use.
VIII. Amortization method: The method of amortization should reflect the pattern in which the economic benefits
from the asset are consumed. However, if such pattern cannot be determined reliably, the straight line
method of amortization should be used.

IX. Accounting for Research and Development Cost

Initial recognition: research and development costs
1) Research cost - charge all research cost to expense.
2) Development costs are capitalized only if an entity needs to demonstrate all of the following: (TIAPAR)
a) The Technical feasibility of completing the asset so that it can be used or sold
b) Its Intention to complete the asset and use or sell it
c) Its Ability to use or sell the intangible asset
d) How the asset will generate Probable future economic benefits
e) The availability of Adequate technical, financial, and other resources to complete the development and to use or
sell the asset
f) Its ability to measure Reliably the expenditure attributable to the asset during its development

Examples of research activities

a. Laboratory research aimed at obtaining or discovering new knowledge.
b. Searching for application of research finding and other knowledge.
c. Conceptual formulation and design of possible product or process alternative.
d. Testing in search for product or process alternative.

Examples of development activities

a. Design, construction, and testing of preproduction prototype and model.
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DARRELL JOE O. ASUNCION, CPA MBA

b. Design of tools, jigs, molds and dies involving new technology.

c. Design, construction and operation of a pilot plant that is not of a scale economically feasible to the
enterprise for commercial production.
d. Design, construction and testing of a chosen alternative for new or improved product or process.

Note: Property, plant and equipment acquired for research and development that do not have alternative future use
should be charged to research and development expense. If the property, plant and equipment have an alternative
future use, the depreciation shall be charged to research and development expense.
• 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.

Activities that not considered research and development

Research and development activities typically occur prior to the beginning of commercial production and distribution of a
product or process.

The following examples relate to commercial production thus are not research and development costs:

1. Engineering follow through in an early phase of commercial production.

2. Quality control during commercial production including routine testing.
3. Trouble shooting breakdown during production.
4. Routine on-going effort to refine, enrich or improve quality of an existing product.
5. Adaptation of an existing capability to a particular requirement or customer need.
6. Periodic design changes to existing products.
7. Routine design of tools, jigs, molds and dies.
8. Activity, including design and construction engineering related to construction, relocation,
rearrangement or start-up of facilities and equipment.

PROBLEM NO. 1
Jimar Co. incurred the following costs during the year:
1 Radical modification of formulation of a glassware product ₱ 70,000
2 Cost of activities aimed at obtaining new knowledge 700,000
3 Marketing research to study consumer tastes 16,000
4 Cost of developing and producing a prototype model 23,000
5 Cost of testing the prototype model for safety and
environmental friendliness 80,000
6 Cost of revising designs for flaws in the prototype model 15,000
7 Salaries of employees, consultants, and technicians
involved in R&D 120,000
8 Amount paid for conference for the introduction of the newly
developed product including fee of a model hired as
endorser 102,000
9 Advertising to establish recognition of the newly developed
product 43,000
10 Cost incurred on search for alternatives for materials,
devices, products, processes, systems or services 30,000
11 Cost of final selection of possible alternatives for a new
process 96,000
12 Periodic or routine design changes to existing products 2,500
13 Modification of design for a specific customer 10,000
14 Cost of design, construction and operation of a pilot plant
that is not of a scale economically feasible for commercial
production 5,000
15 Cost of routine, seasonal, and periodic design of tools, jigs,
molds and dies 18,000
16 Cost of quality control during commercial production 32,000
17 Cost of building acquired to be used in various R&D projects 1,000,000
18 Depreciation on the building described above 100,000
19 Personnel costs of persons involved in research and
development projects 41,200
20 Design, construction, and testing of preproduction
prototypes and models 96,000
Compute for the total research and development expense during the year.
a. ₱1,306,200 c. ₱1,223,500
b. ₱1,376,200 d. ₱1,034,000

PROBLEM NO. 2
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INTANGIBLE ASSETS
DARRELL JOE O. ASUNCION, CPA MBA

During 2019, PINKY COMPANY purchased a building site for its proposed research and development laboratory at a
cost of ₱1,200,000. Construction of the building was started in 2019. The building was completed on December 31,2020,
at a cost of ₱5,600,000 and was placed in service on January 2, 2021. The estimated useful life of the building for
depreciation purposes was 20 years; the straight line method of depreciation was to be employed and there was no
estimated salvage value.

Management estimates that about 50% of the projects of the research and development group will result in long term
benefits (i.e., at least 10 years) to the corporation. However, PINKY fails to demonstrate how such projects will generate
probable future economic benefits. The remaining projects either benefit the current period or are abandoned before
completion. A summary of the number of projects and the direct costs incurred in conjunction with the research and
development activities for 2021 appears below.

Upon recommendation of the research and development group PINKY Company acquired a patent for manufacturing
rights at a cost of ₱1,600,000. The patent was acquired on April 1,2020, and has an economic life of 10 years.

Salaries and Other Expenses

Number Employee (excluding Building
of Projects Benefits Depreciation Charges)
Completed projects with
long term benefits 30 1,800,000 1,000,000
Abandoned projects or
projects that benefit the
current period 20 1,300,000 300,000
Projects in process -
results indeterminate 10 800,000 240,000
Total 60 3,900,000 1,540,000

Required:
1. Compute the total research and development expenses for 2021.
a. 2,920,000 c. 5,440,000
b. 5,880,000 d. 5,720,000
2. Determine the amount of patent amortization for 2021.
a. 80,000 c. 120,000
b. 160,000 d. 0
3. What is the total cost of the Land on December 31, 2021?
a. 1,200,000 c. 0
b. 1,000,000 d. 1,800,000
4. What is the book value of the building on December 31, 2021:
a. 5,320,000 c. 5,040,000
b. 5,600,000 d. 6,460,000
5. What is the carrying value of the patent at December 31, 2021.
a. 1,280,000 c. 1,600,000
b. 1,320,000 d. 0

PROBLEM NO. 3
PATENT ACQUISITION AND AMORTIZATION

SHALANI LABORATORIES holds a valuable patent (No. 362436) on a device that burns body fats. SHALANI does not
manufacture or sell the products and processes it develops; it conducts research and develops products and processes
which it patents, and then assigns the patents to manufacturers on a royalty basis. The history of Patent No. 362436 is as
follows:

DATE ACTIVITY COST

2000 – 2001 Research conducted to develop device ₱7,680,000

2002
Jan. 5 Design and construction of a prototype 1,752,000
Mar. 15 Testing of models 840,000
2003
Jan. 2 Legal and other fees to process patent application 1,241,000

2005
Dec. 10 Legal fees paid to successfully defend device patent 714,000

2006
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INTANGIBLE ASSETS
DARRELL JOE O. ASUNCION, CPA MBA

April 3 Research aimed at modifying the design of the

patented device 860,000

2009
July 28 Legal fees paid in a successful patent infringement
suit against a competitor 680,000

A 17-year useful life was assumed by SHALANI when it received the initial device patent.

On January 1, 2008, it revises its useful life estimate downward to 5 remaining years. The company’s reporting date is
December 31, 2010.

Based on the preceding information, compute the carrying value of Patent No. 362436 on each of the following dates:
1. December 31, 2003
A. ₱1,168,000 C. ₱1,241,000
B. ₱3,607,529 D. ₱1,178,950

2. December 31, 2007

A. ₱1,488,000 C. ₱350,400
B. ₱876,000 D. ₱817,600

3. December 31, 2010

A. ₱657,000 C. ₱525,600
B. ₱876,000 D. ₱350,400

PROBLEM NO. 4 (PATENT, COMPETITIVE, RELATED PATENT)

As part of your engagement to audit the financial statements of the Rex Company, you found the following patent account:
Patent
1/1/2011 500,000
1/1/2013 240,000
1/1/2014 200,000
1/1/2015 100,000 1,040,000 12/31/2015

Additional Information:
• The balance on January 1, 2011 reflects the amount debited to the account when it acquired a patent from
unrelated company for ₱500,000. Rex estimates that the patent has a remaining useful life of 10 years.
• On January 1, 2013, Rex Co. debited the patent account when it acquired a competitive patent from Dauz Corp.
for ₱240,000 in order to protect the old patent. The competitive patent has a remaining legal life and useful life of
16 years.
• On January 1, 2014, Rex Co. debited the patent account when it acquired a related patent from Banggawan Corp.
for ₱200,000. The related patent extended the useful life of the old and competitive patents to 20 years.
• On January 1, 2015, Rex Co. debited the patent account when it incurred litigation costs of ₱100,000 in an
unsuccessful defense of the patents held.
• No amortization has yet been recognized by the company.

Questions:
Based on the above data, compute for the following:
1. Amortization 2011
a. None c. 50,000
b. 25,000 d. 75,000

2. Amortization 2013
a. None c. 50,000
b. 25,000 d. 80,000

3. Carrying value of the Patent, December 31, 2013

a. 715,000 c. 690,000
b. 715,000 d. 560,000

4. Amortization 2014
a. 38,000 c. 50,000
b. 25,000 d. 80,000

5. Loss on Patent written off in 2015

a. 722,000 c. 710,000
b. 760,000 d. 680,000
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DARRELL JOE O. ASUNCION, CPA MBA

X. Internally developed computer software

Costs incurred in creating a computer software product should be charged to expense when incurred until a technological
feasibility has been established to the product.
Technological feasibility is established when an enterprise has produced either a detailed program design of the software
or a working model.
After technological feasibility has been established, capitalizable software costs include the cost of coding and testing and
the cost to produce the product masters.
The costs incurred to actually produce the software from masters and package the software for sale should be charged as
inventory.

PROBLEM NO. 5
GINGER Software Company is an established computer software company. In 2020, the firm incurred the following costs
in the process of designing developing and producing a new software program using a certain technology to access the
Internet:
Designing and planning ₱3,600,000
Code development 5,400,000
Testing 1,800,000
Production of product master 9,000,000

In 2021, GINGER incurred ₱3,600,000 in costs to produce the software program for sale in 2021. The costs of designing
and planning, code development and testing were all incurred before the technological feasibility of the product was
established. GINGER began marketing the software program in 2021 and earned revenues of ₱8,640,000 in 2021.
GINGER estimates that total revenues over the 4-year life of the product will be ₱43,200,000. At the end of 2021,
GINGER was offered ₱14,400,000 for the rights to distribute the software.

QUESTIONS:
Based on the above data, answer the following:
1.How much of the Research and Development production cost will be expensed in 2020?
a. 19,800,000 c. 12,600,000
b. 13,050,000 d. 10,800,000
2.How much of the Research and Development production cost will be expensed in 2021?
a. 5,400,000 c. 3,150,000
b. 5,850,000 d. 2,520,000

PROBLEM NO. 6 Website Cost

The following costs were incurred by Amalayer Company in developing its website:
Undertaking feasibility studies ₱ 80,000
Training employees to operate the web site 24,000
Evaluating alternative products and suppliers 60,000
Purchasing or developing hardware 64,000
Obtaining a domain name 32,000
Installing developed applications on the web server 80,000
Stress testing 12,000
Designing the appearance (e.g. layout and color) of web pages 160,000
Creating, purchasing, preparing (e.g. creating links and 60,000
identifying tags), and uploading information
Updating graphics and revising content 32,000
Adding new functions, features and content 12,000
Reviewing security access 36,000
Questions:
Based on the above, compute for the website cost to be included as intangible asset assuming:
1. The website is developed solely or primarily for promoting and advertising an entity’s own products and services.
a. Nil c. ₱652,000
b. ₱424,000 d. ₱388,000
2. The website arises from development and is for internal or external access and shall be used for placing orders and the
expenditures can be directly attributed to preparing the web site to operate in the manner intended by management
a. Nil c. ₱344,000
b. ₱424,000 d. ₱388,000

XI. Organization cost (Expense as incurred)

Organization cost include:
a. Legal fees in connection with the incorporation- drafting articles of incorporation and by-laws and
corporate registration.
b. Promotional and underwriting fees in connection with the issuance of stock
c. Incorporation fees
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d. Stock issuance cost- printing of stock certificates, cost of stock and transfer book, seal of the corporation
and accounting and legal fees in connection with issuance.

XII. Goodwill (PRESENTED SEPARATELY AMONG OTHER NONCURRENT ASSET)

Recognition of goodwill
Developed goodwill is that goodwill which is generated internally because of good name, capable staff and personnel,
superior quality products, favourable location and high credit standing. Such goodwill is NOT RECORDED.

Purchased Goodwill is the goodwill that has been paid for. Purchased goodwill arises when a business is sold.
Such goodwill is recognized as an ASSET because it has been paid for. But the amount of goodwill cannot exceed the
amount so paid.

Measurement of Goodwill
a. Specific attributes approach
b. Indirect valuation approach
c. Direct valuation or excess of earnings approach

Specific attributes approach

Under this approach, the attributes and components of goodwill like good name, superior quality of products, favourable
location and high credit standing are identified and valued accordingly.

Indirect valuation approach

Under this approach, goodwill is measured by comparing the purchase price for the company with the net tangible and
identifiable assets, meaning total assets excluding goodwill minus liabilities assumed. The excess of the purchase price
over the net tangible and identifiable assets is considered as goodwill.

Direct valuation or excess of earnings approach

This approach seems to be a systematic and logical way of measuring goodwill because if future earnings exceed normal
earnings are indicative of the fact that there is an unidentifiable intangible asset that is causing the excess earnings. Such
unidentifiable asset is called goodwill.

Procedural approach:
Step 1: Compute for the fair value of the net asset acquired by using this formula:
Total adjusted or fair value tangible assets of the acquired company (do not include the goodwill) XX
Less fair value of the liabilities of the acquired company XX
Total fair value of the net asset acquired XX

Step 2: Compute for the normal earnings using the following formula:
Normal earnings Fair value of the net asset acquired x normal rate of return

Step 3: Compute for the average earnings using this formula:

Average Total earnings for number of periods less gain on sale add loss on sale add total bonus of
earnings management personnel
Number of periods

Step 4: Compute for goodwill using the different methods described below:
METHODS OF COMPUTING GOODWILL
1. PURCHASE OF AVE. EXCESS EARNINGS
2. CAPITALIZATION OF AVE. EXCESS EARNINGS
3. CAPITALIZATION OF AVERAGE EARNINGS
4. PRESENT VALUE OR DISCOUNTED VALUE AVE. EXCESS EARNINGS

PURCHASE OF AVE. EXCESS EARNINGS

FORMULA:
AVE. EARNINGS XX
LESS NORMAL EARNINGS XX
AVE. EXCESS EARNINGS XX
GOODWILL=AVE. EXCESS EARNINGS X NO. OF PERIODS
AVE. EARNINGS=TOTAL EARNINGS FOR NUMBER OF PERIODS
NUMBER OF PERIODS

NORMAL EARNINGS=NORMAL RATE OF RETURN X FV, NET ASSETS EXCLDG. GOODWILL

CAPITALIZATION OF AVE. EXCESS EARNINGS

AVE. EARNINGS XX
LESS NORMAL EARNINGS XX
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AVE. EXCESS EARNINGS XX

DIVIDED BY CAP. RATE %
GOODWILL XX

CAPITALIZATION OF AVERAGE EARNINGS

AVE. EARNINGS XX
DIVIDED BY CAP. RATE %
FV OF NET ASSETS, INCLDG. GW XX
LESS: FV OF NET ASSETS, EXCLDG. GW XX
GOODWILL XX

PRESENT VALUE OR DISCOUNTED VALUE AVE. EXCESS EARNINGS

AVE. EARNINGS XX
LESS NORMAL EARNINGS XX
AVE. EXCESS EARNINGS XX
X PV OF ORDINARY ANNUITY AT % XX
GOODWILL XX

Nonamortization of Goodwill
I. The goodwill shall not be amortized because its useful life is indefinite. However, goodwill shall be tested for
impairment at least annually or more frequently if events or changes in circumstances indicate a possible
impairment.

Negative goodwill
If the acquirer’s interest in the net fair value of the identifiable net assets acquired exceeds the cost of the business
combination, the acquirer shall:
1. Reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed
and shall recognise any additional assets or liabilities that are identified in that review.
2. If that excess remains, the acquirer shall recognise the resulting gain in profit or loss on the acquisition
date. The gain shall be attributed to the acquirer.
(i.e. Gain on bargain purchase account)

PROBLEM NO. 7
(GOODWILL COMPUTATION)
Amalawyer Company engaged your services to compute the goodwill and purchase price for the acquisition of Amalayer
Company. The following data are available for the Amalayer Company:

Current Assets ₱ 6,000,000 Current liabilities ₱ 3,500,000

Investments 2,500,000 Noncurrent liabilities 2,500,000
PPE 13,000,000 Ordinary shares 7,000,000
Share Premium 1,500,000
Accumulated Profits 7,000,000
Total Assets ₱21,500,000 Total Liab and SHE ₱21,500,000

You found out that the investments have a fair value of ₱2,000,000 and the current assets and property, plant and equipment
are understated by ₱800,000 and ₱1,850,000. All other assets and equities are properly stated. An examination of the
company’s income for the last 4 years revealed that the total earnings amounted to ₱9,000,000. The said earnings include
gain on sale during the last year of ₱100,000 and ₱150,000 annual bonus of the president. The normal rate of return is
10%.

Questions:
Compute for the goodwill and the corresponding purchase price assuming:
1. Purchase of goodwill for 4 years.
Purchase Purchase
Goodwill price Goodwill price
a. ₱ 2,440,000 ₱20,090,000 c. ₱12,037,500 ₱29,687,500
b. ₱ 6,100,000 ₱23,750,000 d. ₱ 1,852,753 ₱19,502,753

2. Capitalization of average excess earnings using 10%

Purchase Purchase
Goodwill price Goodwill price
a. ₱ 2,440,000 ₱20,090,000 c. ₱12,037,500 ₱29,687,500
b. ₱ 6,100,000 ₱23,750,000 d. ₱ 1,852,753 ₱19,502,753

3. Capitalization of average earnings using 8%.

Purchase Purchase
Goodwill price Goodwill price
a. ₱ 2,440,000 ₱20,090,000 c. ₱ 6,100,000 ₱23,750,000
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DARRELL JOE O. ASUNCION, CPA MBA

b. ₱12,037,500 ₱29,687,500 d. ₱ 1,852,753 ₱19,502,753

4. Discounted average excess earnings using 12% rate.

Purchase Purchase
Goodwill price Goodwill price
a. ₱2,440,000 ₱20,090,000 c. ₱ 1,852,753 ₱19,502,753
b. ₱6,100,000 ₱23,750,000 d. ₱12,037,500 ₱29,687,500

Return on Average Net Assets

PROBLEM NO. 8
Joy Company engaged your services to compute the goodwill in the purchase of another entity which provided the following:

Net income Net assets

2016 ₱2,000,000 ₱7,800,000
2017 2,500,000 8,700,000
2018 3,900,000 9,000,000

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. ₱13,400,000 c. ₱11,200,000
b. ₱14,000,000 d. ₱12,900,000

PROBLEM NO. 11

You are engaged in your first time audit of GRETCHEN CO.. The following facts were discovered relating to the
company’s intangible assets:

A. On January 2, 2016, the Company spent ₱800,000 to apply for and obtain a patent on a newly developed product.
The patent had an estimated useful life of 10 years, At the beginning of 2020, the company spent ₱120,000 in
successfully prosecuting an attempted patent infringement. At the beginning of 2021, the company purchased for
₱500,00 a patent that was expected to prolong the life of its original patent by 4 years.
B. On January 1, 2021, the Company signed an agreement to operate as a franchisee of “MC DOLLIBEE” Inc. for an
initial franchise fee of ₱1,000,000. The agreement requires payment of ₱400,000 on January 1, 2021, with the
balance payable in three equal annual instalment of ₱200,000 payable at the end of each year starting December
31, 2021. The agreement also specifies that GRETCHEN will have to pay MC DOLLIBEE an amount equal to 5% of
its annual revenue not later than February 14 of the year following the year of sale.

Shortly after the agreement was signed, GRETCHEN Company learned that MC DOLLIBEE granted a franchise to
another entity for an initial franchise fee of ₱800,000 cash. The franchise has an indefinite life but the company estimates
that this franchise will benefit the Company only for 10 years. Total revenue in 2021 amounted to ₱3,000,000. In addition,
the company paid ₱200,000 to an advertising agency to promote the products resulting from the franchise agreement.
C. During 2021, the Company incurred costs to develop and produce computer software product, as follows:
Salaries of programmers doing the research 2,600,000
Costs incurred for testing after technological feasibility has been established
2,800,000
Other expenses incurred prior to establish technological feasibility 1,000,000
Other coding costs to establish technological feasibility 800,000
Other testing costs to establish technological feasibility 200,000
Costs to produce and prepare software for sale 500,000
Packaging costs 100,000
Total revenue from the software amounted to P 4,000,000 in 2021. The company estimates total revenues of ₱16,000,000
from this software.

1. Carrying value of the patent at December 31, 2021 is

a. ₱ 800,000 b. ₱ 900,000 c. ₱ 1,000,000 d. ₱ 1,100,000

2. Carrying value of the franchise at December 31, 2021 is

a. ₱ 800,000 b. ₱1,000,000 c. ₱ 720,000 d. ₱ 900,000

3. Carrying value of the software development cost at December 31, 2021 is

a. ₱ 2,100,000 b. ₱ 1,800,000 c. ₱4,600,000 d. ₱ 2,800,000

STUDY WHILE OTHERS ARE SLEEPING, WORK WHILE OTHERS ARE LOAFING, PREPARE WHILE OTHERS ARE
PLAYING AND DREAM WHILE OTHERS ARE WISHING- WILLIAM ARTHUR WARD
 Page 10 of 10 | AUD Handouts No. 12

INTANGIBLE ASSETS
DARRELL JOE O. ASUNCION, CPA MBA

BELIEVE IN YOURSELF AND ALL THAT YOU ARE. KNOW THAT THERE IS SOMETHING INSIDE YOU THAT IS
GREATER THAN ANY OBSTACLE- CHRISTIAN D. LARSON.
I’D RATHER REGRET THE RISKS THAT DIDN’T WORK OUT THAN THE CHANCES I DIDN’T TAKE AT ALL.-SIMONE
BILES
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