ASSESSMENT ACTIVITIES

MODULE 1: INTANIBLE ASSETS

DISCUSSION QUESTIONS
1. What are the two main characteristics of intangible assets?
2. If intangibles are acquired for stock, how is the cost of the intangible
determined?
3. Intangibles have either a limited useful life or an indefinite useful life.
How should these two different types of intangibles be amortized?
4. Why does the accounting profession make a distinction between
internally created intangibles and purchased intangibles?
5. In 2020, Ghostbusters Corp. spent P420,000 for “goodwill” visits by sales
personnel to key customers. The purpose of these visits was to build a
solid, friendly relationship for the future and to gain insight into the
problems and needs of the companies served. How should this
expenditure be reported?
6. What are factors to be considered in estimating the useful life of an intangible
asset?
7. What should be the pattern of amortization for a limited life intangible?
8. Columbia Sportswear Company acquired a trademark that is helpful in
distinguishing one of its new products. The trademark is renewable every
10 years at minimal cost. All evidence indicates that this trademarked
product will generate cash flows for an indefinite period of time. How
should this trademark be amortized?
9. Explain how losses on impaired intangible assets should be reported in
income.
10. What is the nature of research and development costs?

1. The main characteristics of Intangible Assets is they lack physical substance

and they are also not considered as a financial instrument.  In most cases,
they provide services over a period of years and normally classified as long-
term assets.
2. If intangibles are acquired in exchange for stock or other assets, the cost of
intangible is fair value of the consideration given or the fair value of the
consideration received, whichever is more clearly evident.
3. Companies amortize limited-life intangibles. They do not amortize indefinite-
life intangibles. Limited-life intangibles should be amortized by systematic
charges to expense over their useful life. The useful life should reflect the
period over which these assts will contribute cash flows. The amount to report
for amortization expense should reflect the pattern in which a company
consumes or uses up the asset, if it can reliably determine that pattern.
Otherwise, use a straight-line approach.
4. When intangibles are created internally, it is often difficult to determine the
validity of any future service potential. To permit deferral of these types of
costs would lead to a great deal of subjectivity because management could
argue that almost any expense could be capitalized on the basis that it will
increase future benefits. The cost of purchased intangibles, however, is
capitalized because its cost can be objectively verified and reflects its fair
value at the date of acquisition.
5. Companies cannot capitalize self-developed, self-maintained, or self-created
goodwill. These expenditures would most likely be reported as selling
expenses.
6. a. The expected use of the asset by the entity.
b. The expected useful life of another asset or a group of assets to which
the useful life of the intangible asset may relate.
c. Any legal, regulatory, or contractual provisions that may limit useful life.
d. Any legal, regulatory or contractual provisions that enable renewal or
extension of the asset's legal or contractual life without substantial cost.
e. The effects of obsolescence, demand, competition, and other economic
factors.
f. The level of maintenance expenditure required to obtain the expected
future cash flows from the asset.
7. The amount of amortization expensed for a limited-life intangible asset should
reflect the pattern in which the asset is consumed or used up, if that pattern
can be reliably determined. If the pattern of production or consumption cannot
be determined, the straight-line method of amortization should be used.
8. Not amortized because the trademarked product will generate cash flows for
an indefinite period of time.
9. Impairment losses are reported as part of income from continuing operations,
generally in the "Other expenses and losses" section. Impairment losses (and
recovery of losses for assets to be disposed of) are similar to other costs that
would flow through operations. Thus, gains (recoveries of losses) on assets to
be disposed of should be reported as part of income from continuing
operations.
10. Research and development costs are incurred to develop new products or
processes, to improve present products, or to discover new knowledge. R & D
expenditures present problems of:
A. identifying the costs associated with particular activities, projects, or
achievements, and
B. determining the magnitude of the future benefits and the length of time
over which such benefits may be realized. R & D activities may incur
costs classified as follows:
a. materials, equipment, and facilities
b. personnel
c. purchased intangibles
 d. contract services, and
e. indirect costs

PROBLEMS
Problem 1
Americano Co. developed a new machine for manufacturing baseballs.
Because the machine is considered very valuable, the company had patented
it. The following expenditures were incurred in developing and patenting the
machine:

Research Salaries and fringe benefits for scientists P100,000

Cost of testing prototype 250,000
Legal cost for filing of patent 230,000
Fees paid to government patent office 140,000
Drawing acquired by patent office to be filed with patent application 75,000
What amount should be capitalized as cost of patent?

Legal cost for filing of patent ₱ 230,000

Fees paid to government patent office 140,000
Drawing acquired by patent office
to be filed with patent application 75,000
Cost of patent ₱ 445,000

Problem 2
French Vanilla Company commenced operations in the current year. A number of
expenditures were made during the current year that were debited to one account
Intangible asset.

Incorporation fees and legal costs related to organizing the

incorporation P150,000
Fire Insurance premium for three-year period 60,000
Legal fees for filing a patent on a new product resulting from an
A&B project 50,000
Purchase of copyright 300,000
Legal fees for successful defense of the patent developed
from the 50,000
project
Entered into a 10-year franchise agreement with a franchisor 600,000
Advertising cost 50,000
Purchase of all the outstanding ordinary shares of an acquire.
On the date of purchase, the acquire had fair value of total
 assets, P6,000,000 and total liabilities of P2,200,000. 5,000,000

What amount should be reported as intangible asset?

Legal fees for filing a patent on a new
product resulting from an A&B project ₱ 50,000
Purchase of copyright 300,000
Entered into a 10-year franchise
agreement with a franchisor 600,000
Goodwill 1,200,000
Intangible Asset ₱ 2,150,000

Problem 3
During 2019, Latte Inc., spent P5,000,000 developing its new “Hyperion”
software package. Of this amount, P2,200,000 was spent before technological
feasibility was established for the product, which is to be marketed to third
parties. The package was completed at December 31, 2019. Latte expects a
useful life of 8 years for this product with total revenues of P16,000,000. During
the first year (2020), Latte realizes revenues of P3,200,000.

a. What journal entries should have been prepared by the accountant

in 2019 for the foregoing facts?
b. Prepare the entry to record amortization at December 31, 2020.

a. What journal entries should have been prepared by the accountant in 2019 for
the foregoing facts?
2019
Software Development Cost 2,200,000
Research and Development Expense 2,800,000
Cash 5,000,000
Cost incurred for the development and
registration of the software package

b. Prepare the entry to record amortization at December 31, 2020.

2020
Dec. 31
Amortization Expense 560,000
Accumulated Amortization 560,000.00
2,800,000 x 3.2/16 = 560,000

Problem 4
Arabica Coffee Company acquired patent right on July 1, 2018 for P2,000,000. The
asset has a legal life of 15 years but due to the rapidly changing technology
management estimates a useful life of only 5 years. On January 1, 2019,
management is uncertain that the process can actually be made economically
feasible and decides to write down the patent to an estimated market value of
P600,000. Amortization will be taken three years from this time. On January 1,
2021, after having perfected the related production process, the asset is now
appraised at a sound value of P2,400,000. Furthermore, the estimated useful life is
now believed to have extended by six more years. The company uses the straight-
line method of amortization.
Compute for the following:
a. Amortization expense for 2018
b. Impairment loss to be recognized in 2019
c. Patent carrying value at December 31, 2020
d. Revaluation surplus recognized in 2021

a. Amortization expense for 2018

Cost of Patent ₱ 2,000,000
Useful life 5 years
400,000
6/12
Amortization expense 2018 ₱ 200,000

b. Impairment loss to be recognized in 2019

Cost of Patent ₱ 2,000,000
Amortization Expense 2018 (200,000)
Carrying Value 1,800,000
Market Value, Jan. 2019 (600,000)
Impairment Loss 2019 ₱ 1,200,000

c. Patent carrying value at December 31, 2020

Estimated Market Value ₱ 600,000
 1/3
Carrying Value 2020 ₱ 200,000

d. Revaluation surplus recognized in 2021

New Market Value ₱ 2,400,000
Carrying Value, Dec. 2020 (200,000)
Reversal of Impairment Loss (1,200,000)
Revaluation Surplus 2021 ₱ 1,000,000

Problem 5
Huagcang Gagalau Company was granted a patent on January 1, 2016 and
capitalized P440,000. The entity was amortizing the patent over the useful life
of 15 years.
During 2019, the entity paid P145,000 in successfully defending an attempted
infringement of the patent. After the legal action was completed, the entity sold
the patent to the plaintiff for P800,000. The policy is to take no amortization in
the year of disposal.
What amount should be reported as gain from sale of patent in 2019?

Selling Price of Patent ₱ 800,000.00

Carrying Value
Book Value 440,000
Amortization Value (44,000 x 3/15) 88,000 352,000.00
Gain from sale of patent in 2019 ₱ 448,000.00
 MODULE 2: INVESTMENT PROPERTY

DISCUSSION QUESTIONS
1. How is an investment property distinguished from owner-occupied
property? From inventories?
2. Give instances when an is classified “from” and “into” investment property.
3. How are the assets classified as investment property measured in
the statement of financial position?
4. Are assets held for rental classified as investment property? Discuss.
5. Differentiate accounting treatment subsequent to initial recognition of
investment properties using cost and fair value model.

PROBLEMS

Problem 1
Indicate which of the following items will be reported as Investment property.
a. Building occupied as factory site
b. Land held for capital appreciation
c. Land held for undetermined future use
d. Building that houses materials for construction
e. Condominium units in the building that is being constructed for sale in
ordinary course of business
f. Vacant building that is intended to be leased out under operating leases
g. Machinery held for rental
h. Property constructed on behalf of a third party

Problem 2
The Buckethead Company has a single investment property which had
originally cost P580,000 on 1 January 2017. At 31 December 2019 its fair value
was P600,000 and at 31 December 2010 it had a fair value of P590,000. On
acquisition, the property had a useful life of 40 years.

What should be the expense recognized in Buckethead's profit or loss for

the year ending 31 December 2020 under each of the fair value model and
the cost model?

Problem 3
The Conehead Company purchased an investment property on January 1,
2017 for a cost of P220,000. The property had a useful life of 40 years and on
December 31, 2019 had a fair value of P300,000. On January 1, 2020, the
property was sold for net proceeds of P290,000. Conehead uses the cost
model to account for investment properties.

What is the gain or loss to be recognized in profit or loss for the year
ended December 312020 regarding the disposal of the property?

Problem 2-4
Bangon Cagayanon Corporation acquired a building on January 1, 2021. The
acquisition cost was P= 5,000,000 payable at the rate of P= 1M at the
beginning of each year starting January 1, 2021. The company paid option
money totaling P= 400,000, P= 85,221 of which is attributed to real properties
not acquired. The company also paid property taxes in arrears as of January 1,
2021 at P= 147,872. The prevailing market rate of interest for transaction
is 12%. The building is estimated to have useful life of 25 Years.

The property was appraised at the end of each year as follows:

2021 2020 2021
Appraised values P= 4,600,000 P= 4,100,000 P=
4,300,000

Required:
1. How much the property should be initially recognized?
2. What is the carrying value property of the as of December 31, 2020,
assuming that the building is an owner-occupied property?
3. Using the information in number 2, how much impairment loss
should be recognized from the asset in the 2020 profit or loss?
 MODULE 3: NON-CURRENT ASSET HELD FOR SALE

DISCUSSION QUESTIONS
1. What are the conditions required for a non-current asset to be classified as
held for sale?
2. How is a non-current asset or a disposal group held for sale measured
in the financial statements?
3. When is the sale of a non-current asset considered to be highly probable?
4. How are non-current assets held for sale shown on the face of the
statement of financial position?
5. How to account for changes in classification of non-current asset to non-
current asset held for sale?

PROBLEMS
Problem 1
A piece of equipment with a carrying value of P 42,000 on January 1, 2020 meets
the criteria for classification as Held for Sale on March 31, 2020. The equipment is
being depreciated over 5 years on a straight-line basis and has a remaining life of 3
years as of January 1, 2020. The following additional information is available:

Fair value less cost to sell on March 31, 2020

P 36,000
Fair value less cost to sell on December 31, 2020 40,000

Required:
1. Give the entries on March 31, 2020 and December 31, 2020 as a result of
foregoing.
2. Assume instead that the fair value less cost to sell on December 31,
2020 decreased to P35,000. Give the entry on December 31, 2015.

Problem 2
On January 1, 2020, IT’S SHOWTIME Corporation decided to dispose of an
item of plant that is carried in its records at a cost of P= 900,000, with
accumulated depreciation of P= 160,000. Depreciation on the plant since it
was originally acquired has been charged of P= 10,000 per month. The plant
will continue to be operated until it is sold, at which time the operations of the
plant will be outsourced. The company undertook all the necessary actions to
be able to classify the asset as held for sale. It is estimated that it could sell
the plant for its fair value, P= 720,000, incurring P= 20,000 selling costs in the
process. The plant has been depreciated at an amount of P= 10,000 per
month.
On March 31, 2020, the plant had not been sold but, due to shortage of this
type of plant, there had been an increase in the fair value to P= 770,000. On
June 30, 2020, IT’S SHOWTIME sold the plant for P= 785,000 incurring P=
25,000 selling costs.

The depreciation expense to be recognized in 2020 is .

 MODULE 4: INVESTMENT IN EQUITY SECURITIES

PROBLEMS
1. Equity securities acquired for trading shall be measured at
a. Cost, being the purchase price plus transaction costs
b. Cost, being the purchase price
c. Fair value, with change in fair value taken to profit or loss
d. Fair value, with change in fair value taken to other comprehensive income
2. Under which type of investment classification is directly attributable cost
of acquisition not included in the initial measurement basis?
a. Investment in associate
b. Financial assets at amortized cost
c. Financial assets at fair value through profit or loss
d. Financial assets at fair value through other comprehensive income

3. An instrument representing ownership shares and the right to acquire

ownership shares
a. Debt Security
b. Equity Security
c. Shareholder's Equity
d. Treasury Bills

4. Which one of the following indicates that the investor does not
exercise significant influence over the investee?
a. Majority ownership of the investee is concentrated among a
small group of shareholders who operate the investee without
regard to the views of the investor.
b. There is interchange of managerial personnel between the investor and
the investee.
c. There are material intercompany transactions between investor and
investee.
d. The investor has representation in the investee's board of directors.

5. An investor uses equity method to account for investment in associate.

The purchase price implies a fair value of the investee's depreciable
assets in excess of the investee's net asset carrying values. The
investor's amortization of the excess
a. Decreases goodwill account.
b. Decreases the investment in associate account.
c. Increases the investment income account.
d. Does not affect the carrying value of the investment.

6. Investment in associate gives the holder of the securities the power to

participate in (but not to govern) the financial and operating policy
decisions of the investee. Cash dividends received by the holder of
securities from the associate will:
a. Be credited to dividend income.
b. Be debited to Dividends Payable.
 c. Be credited to Retained Earnings.
d. Be a deduction from the investment in associate account.

7. Under IFRS 9, the cumulative balance of equity as a result of

measuring equity investments at fair value through OCI.
a. Shall not be reversed to P/L but may be transferred to another equity
account
b. Shall not be reversed to P/L and shall be transferred to another equity
account
c. Shall be reversed to P/L at the date the security is sold
d. Shall be reversed to P/L when there is objective evidence of impairment.

8. Non-trading equity instrument shall be classified as

a. At fair value through profit or loss
b. At fair value through other comprehensive income
c. Based on irrevocable choice at date of initial recognition either
at fair value through P/L or at fair value through OCI
d. Based on irrevocable choice at the reporting date either at fair value
through P/L or at fair value through OCI
9. According to IAS 28, which of the following will not fall under the situation
of "existence of significant influence by an investor in the financial and
operating policy decisions of the investee but not control of these
decisions."
a. Technological dependencies
b. Material intercompany transactions
c. Participation in the policy making decisions
d. Power to govern the financial and operating policy decisions of
an enterprise so as to obtain benefits from its activities.

10. An investor uses the equity method to account for its 30% investment in
ordinary shares of an investee. Amortization of the investor's share of the
excess of market value over book value of depreciable assets at the date
of the purchase should be reported in the investor's statement of
comprehensive income as part of
a. Share in the profit of investee
b. Other Expense
c. Depreciation Expense
d. Amortization of Goodwill

11. Pacman Company purchased 1,000 shares of RJ Company ordinary

shares at P540/share. Pacman also paid broker's commission of
P10,000 in relation to the said investment. The securities are designated
as at fair value through profit or loss. At the end of 2019, the securities
had total market value of P565,000. At December 31, 2020 the total
market value of the equity securities is P 590,000. The holding gain or
loss that would be reported by Pacman on its income statement for
the year 2020 is
 ₱25,000 .

Market Value, 2020 590,000

Less: Carrying Value, 2019 565,000
Holding Gain, 2020 25,000

12. On December 01, 2020, Matiyaga Company purchased 1,000 shares of

Masipag Corp. P100 par ordinary shares (5% interest in voting rights) at
P175 per share. Matiyaga also paid transaction cost of P3,500. The
shares were designated as equity investments at fair value through other
comprehensive income. On December 31, 2020, Masipag ordinary
shares were quoted at P200 per share. What is the carrying value of the
equity investment of Matiyaga at December 31, 2019?

13. On September 11, 2020, Ali Company purchased for P7,000,000 the
assets and will assumed all the liabilities of Iris Corporation. As of this
date, the book value and fair market value of Iris assets are P10,000,000
and P11,500,000 respectively. Iris has current liabilities of P2,000,000
and noncurrent liabilities of P3,250,000 respectively. How much goodwill
is to be recorded by Ali?
Using the information 14 – 15:
LA SCALA Corporation had the following equity investments transactions:
Date Reference Particulars
2019 Buy 10,000 Gerphil Corporation at P5 per share. Transaction cost
Dec. 2 invoice P500. Designated as Equity Investment at Fair Value through
123 Profit or Loss.
Dec. 3 Sell 10,000 Gerphil Corporation at P7 per share. Transaction cost
invoice P700.
456
Dec. 6 Buy 1,000 Gaudioso Corporation at P50 per share. Transaction
invoice cost P500. Designated as Equity Investment at Fair Value
135 Through Other
Comprehensive Income.
Dec. 18 Buy 20,000 Gerphil Corporation at P6 per share.
invoice Transaction cost P1,400. Designated as
156 Equity Investment at Fair Value through
Profit or Loss.
Dec. 26 CM 1000 P500 Cash Dividend from Gaudioso Corporation.
Dec. 31 PSE Report Closing prices per share: Gerphil P7; Gaudioso P48; La Scala
P100

14. Which amounts should LA SCALA Corporation report in its December

31, 2019 Statement of Financial Position?
Equity Investment Equity Investment Other
 at Fair Value at Fair Value Comprehensive
through Profit and through Income –
Loss Other Unrealized
Comprehensive Gain/Loss from
Income equity investment at
OCI
a. P140,000 P50,500 P2,500 credit
b. P140,000 P48,000 P2,500 debit
c. P70,700 P49,400 none
d. P120,000 P100,000 P1,400

15. What is the journal entry to recognize P500 dividend received by

LA SCALA from Gaudioso?

Cash 500,000
Dividend Revenue 500,000
(1,000 shares x P500 = 500,000)

Using the information 16 – 17:

Holiday, Inc. had the following transactions in the ordinary shares of May
Corp., which has 1,000,000,000 ordinary shares outstanding.

January 5 Bought 4,000 ordinary shares, P100 par, at P88.

June 15 Received 10% bonus issue.
August 31 Received P4 cash dividend for each ordinary share.
16. How much is the revised cost per share after receipt of bonus issue? 80

Purchased Ordinary Shares 4,000

Multiply: Bonus Received 10%
Additional Ordinary Shares 400

Purchased Ordinary Shares 4,000

Add: Additional Ordinary Shares 400
Total Ordinary Shares 4,400

Carrying Value, Jan. 5 (4,000 shares x P88) ₱ 352,000

Divide: Total Ordinary Shares 4,400
Cost per Share after the receipt of issued Bonus ₱ 80

17. Based on the foregoing, what is the journal entry to recognize the receipt of
cash dividend?

Cash 17,600
Dividend Revenue 17,600
(4,400 shares x P4 = 17,600)
 18. Charmaine Company provided the following data pertaining to dividends
on ordinary share investments for the current year:
 On October 01, the entity received P600,000 liquidating dividend from A
Company. The entity owned a 10% interest in A Company.
 The entity owned a 20% interest in B Company which declared and paid
a P4,000,000 cash dividend to shareholders on December 31.
 On December 01, the entity received from C Company a dividend in kind
of one share of D Company for every 4 C Company shares held. The
entity had 100,000 C Company shares which have a market price of P50
per share on December 01. The market price of D Company share was
P10.
How much is the dividend income to be recognize for the year?

Dividend –B Company (P4,000,000 x 20%) ₱ 800,000

Add: Property Dividend
(100,000 shares / 4 = 25,000)
(25,000 x P10 = 1,250,000) 250,000
Dividend Income ₱ 1,050,000

19. Therese Company issued rights to subscribe to its stock, the ownership
of 4 shares entitling the shareholders to subscribe for 1 share at P100.
An investor owned 50,000 shares with total cost of P5,000,000. The
share is quoted right-on at P125. The stock rights are accounted for
separately and measured initially at fair value. What is the cost of the
new investment assuming all of the stock rights are exercised by the
investor?

Initial Cost of Rights (50,000 shares x 5*) ₱ 250,500

Add: Cash paid for the new shares
(5,000 shares / 4 = 12,500)
(12,500 x 100 = 1,250,000) 1,250,000
Cost of New Investment ₱ 1,500,000

*Theoretical value of right:(P125 –P100) / (4 + 1) = 5

20. On July 01, 2020, Jennifer Company acquired 20% of the outstanding
ordinary shares of another entity for P5,000,000. The carrying value of
the acquired assets was P4,000,000. The excess of cost over the
carrying amount was attributable to an identifiable intangible asset which
was undervalued on the investee’s statement of financial position and
 which had a remaining useful life of 5 years. For the year ended
December 31, 2020, the investee reported net income of P6,000,000
and paid cash dividends of P1,000,000 on ordinary shares capital and
issued 10% stock dividend on December 31, 2020. What is the carrying
value of the investment in associate on December 31, 2020?

Acquisition Cost ₱ 5,000,000

Add: Share in Profit (P6,000,000 x 20% x 6/12) 600,000
Less: Cash Dividend (P1,000,000 x 20%) 200,000
Less: Adjustments in reported profit* 20,000
Less: Stocks Dividend (P4,000,000 x 10% x 20%) 80,000
Carrying Value of Investment in Associate ₱ 5,300,000

*Adjustments in reported profit: (20% x P1,000,000) / 5 = P40,000

P40,000 X 6/12 = P20,000