PRACTICAL ACCOUNTING 1
The following are items that could be included in the Intangible Assets:
Investment in a subsidiary company
Cost of engineering activity required to advance the design of a
product to the manufacturing stage
Lease prepayments (6 months’ rent paid in advance)
Cost of equipment obtained under finance lease
Internally generated publishing title
Costs incurred in the formation of the corporation
Operating losses incurred in the start-up of the business
Training costs incurred in start-up operations
10. Purchase of a franchise
11. Goodwill internally generated
12. Cost of testing in search for product alternatives
13. Goodwill acquired in the purchase of a business
14. Cost of developing a patent
15. Cost of purchasing a patent from an inventor
16. Legal costs incurred in securing a patent
17. Costs of a successful legal suit to protect the patent
18. Cost of conceptual formulation of possible product alternatives
19. Cost of purchasing a copyright
20. Research and development costs
21. Long-term receivables
22. Cost of developing a trademark
23. Cost of purchasing a trademark
24. Computer software for a computer-controlled machine that cannot
operate without that specific software
25. Operating system of a computer
How much could be recognized as Intangible Assets?
In connection with your audit of the Ramil Corporation’s financial statements for the year 2012 you noted the following
items relative to the company’s Intangible assets.
A patent was purchased from Maica Company for P4,000,000 on January 2, 2011.
Ramil estimated that the
remaining useful life of the patent to be 10 years.
The patent was carried in Maica’s accounting records at a carrying
value of P4,000,000 when Maica sold it to Ramil.
During 2012, a franchise was purchased from Gloria Company for P960,000.
In addition, 5% of the revenue from the
franchise must be paid to Gloria.
Revenue from the franchise for 2012 was P5,000,000.
Ramil estimates the useful
life of the franchise to be 10 years and takes full year’s amortization in the year of purchase.
Ramil incurred research and development costs of P866,000 in 2012.
Ramil estimates that these costs will be
recouped by December 31, 2015.
On January 1, 2012, Ramil, because of the recent events in the industry, estimates that the remaining life of the
patent purchased on January 2, 2011, is only 5 years from January 1, 2012.
Based on the above and the result of your audit, determine the following: