OLD NEW

INTANGIBLE ASSET - IAS 38 IAS IFRS

PAS PFRS

DEFINITION: AN IDENTIFIABLE NON-MONETARY ASSET WITHOUT PHYSICAL SU

CRITICAL ATTRIBUTES :
1. IDENTIFIABLITY
A. SEPARABLE
B. ARISES FROM CONTRACTUAL OR LEGAL RIGHTS
2. CONTROL
POWER TO OBTAIN FUTURE ECONOMIC BENEFITS AND TO
RESTRICT ACCESS OF OTHERS TO THOSE BENEFITS

3. FUTURE ECONOMIC BENEFITS

SALES - COST = INCOME

SCOPE: (EXCLUSION FROM IAS 38)

1. GOODWILL (IFRS 13)
2. FINANCIAL ASSETS (IFRS 9)
3. RIGHTS ARISING FROM EXPLORATION & EVALUATION (PFRS 6)
4. EXPENDITURES ON THE DEVELOPMENT & EXTRACTION OF
MINERAL RESOURCES
5. INTANGIBLE ASSETS HELD FOR SALE IN THE ORDINARY COURSE
OF THE BUSINESS (IAS 2)
6. INTANGIBLE ASSET HELD FOR SALE (IFRS 5)
7. DEFERRED TAXES (IAS 12)
8. LEASES (IFRS 16)
9. DEFERRED ACQUISITION COST (IFRS 4 )
10. ASSETS ARISING FROM EMPLOYEE BENEFITS (IFRS 19)
RECOGNITION :
1. PROBABLE
2. MEASURABLE
INVOICE PRICE
INITIAL MEASUREMENT AT COST
MODE OF ACQUISITION PURCHASE PRICE
1. SEPARATE ACQUISITION
DACs (TIPSIE) (PET)
PROFESSIONAL F
EMPLOYEE BENE
TESTING COSTS

2. DEFERRED BASIS CASH PRICE EQUIVALENT

PV OF CASH FLOWS

3. ACQUISITION AS PART OF BUSINESS COMBINATION

AT FAIR VALUE
FAIR VALUE
4. GOVERNMENT GRANT
NOMINAL AMOUNT/ZER

W/ COMMERCIAL SUBSTANCE
5. EXCHANGE

W/O COMMERCIAL SUBSTANCE

NO GAIN OR LOS

6. INTERNALLY GENERATED

INTERNALLY GENERATED INTANGIBLE ASSET (DACs)

 DACs:

NOT DACs:

NOT AN IA:
1. INTERNALLY GENERATED BRANDS
2. INTERNALLY GENERATED MASTHEADS NEW YORK TIME
3. PUBLISHING TITLES VOGUE
4. CUSTOMER LISTS
5. OTHER SIMILAR ITEMS

RESEARCH AND DEVELOPMENT COST

1. RESEARCH PHASE SEARCH, NEW
ACTIVITIES AT OBTAINING AND DISCOVERING NEW KNOWLEDGE
SEARCHING & APPLICATION OF RESEARCH FINDINGS & OTHER KN
CONCEPTUAL FORMULATION & DESIGN OF POSSIBLE PRODUCT O
TESTING IN SEARCH FOR PRODUCT/PROCESS ALTERNATIVE

ALL COSTS INCURRED UNDER RESEARCH PHASE ARE EXPENSED!!

2. DEVELOPMENT PHASE DESIGN

GR: EXPENSED
XPN: INTANGIBLE ASSET (IF ALL 6 CRITERIAS ARE MET)
I. The technical feasibility of completing the intangible ass
II. Its intention to complete the intangible asset and use or
III. Its ability to use or sell the intangible asset.
IV. How the intangible asset will generate probable future
V. The availability of adequate technical, financial and othe
and to use or sell the intangible asset.
VI. Its ability to measure reliably the expenditure attributa

RESEARCH DEVELOPMENT COMMERCIAL PR

SUBSEQUENT MEASUREMENT:
1. COST MODEL
2. REVALUATION MODEL [ IF THERE IS AN ACTIVE MARKET

CONCEPT AMORTIZATION:
1. FACTORS OF AMORTIZATION
A. AMORTIZABLE AMOUNT [ COST - RV]
B. RESIDUAL VALUE
GR: PRESUMED TO BE ZERO
XPN: 1. 3RD PARTY COMMITTED TO BUY THE I.A
2. ACTIVE MARKET

C. USEFUL LIFE:
DEFINITE
INDEFINITE

D. PRESENTATION:
GR: EXPENSE
XPN: COST OF ANOTHER ASSET

E. PERIOD
COMMENCEMENT: WHEN IT IS AVAILABLE FOR USE
CESSATION: 1. WHEN IT IS DERECOGNIZED
2. BECOMES AVAILABLE FOR SALE

SUBSEQUENT COSTS : GR: EXPENSED

XPN: COST OF I.A

MAJOR CATEGORIES OF I.A (US GAAP)

1. MARKETING RELATED
 A. TRADEMARK
B.MASTHEADS expensed if internally generated; can be ca
C. WEBSITE DEVELOPMENT COST
2.TECHNOLOGY RELATED
A. PATENT
B. COMPUTER SOFTWARE
3. CUSTOMER-RELATED
CUSTOMER LIST
4. ARTISTIC-RELATED
COPYRIGHT
5. CONTRACT RELATED
FRANCHISE
LEASE HOLD/LEASE RIGHT/LEASE BONUS
6. OTHER CATEGORIES
GOODWILL

PATENT EXCLUSIVE RIGHT OF ITS INVENTIONS

COST: 1. ACQUIRED SEPARATELY 2. INTERNALLY G

PURCHASE PRICE
IMPORT DUTIES
NON-REFUNDABLE PURCHASE TAXES
DACs

AMORTIZATION PERIOD: R.A 8293 :LEGAL LIFE IS 20 YEARS

1. PURCHASED REMAINING LIFE LEGAL L
2. INTERNALLY DEVELOPED
3. COST OF COMPETITIVE PATENT
ACQUIRED TO PROTECT ORIGINAL PATENT
4. COST OF RELATED PATENT ACQUIRED:
TO EXTEND LIFE OF OLD PATENT
NO EXTENTION OF LIFE
 CLASSIFICATION:PATENT HAS DEFINITE LIFE
INDEFINITE NOT AMORTIZED

IMPAIRMENT:
WHEN?
DEFINITE TESTED WHENEVER THERE IS IN
INDEFINITE 1 AT LEAST ANNUALLY
2 WHENEVER THERE IS IND

TRADEMARK SYMBOL SIGN, SLOGAN OR NAME TO DISTINGUISH A PROD

COST: 1. ACQUIRED SEPARATELY 2. INTERNALLY G

PURCHASE PRICE
DACs

AMORTIZATION & IMPAIRMENT

LEGAL LIFE: 10 YEARS + 10 YEARS RENEWABLE
AMORTIZATION:
DEFINITE- LEGAL LIFE VS USEFUL LIFE WHIC
INDEFINITE- NOT AMORTIZED

IMPAIRMENT:
DEFINITE- TESTED WHENEVER THERE IS IN
INDEFINITE- 1. ANNUALLY 2. WHENEVER TH

LITIGATION: EXPENSED

COPYRIGHT EXCLUSIVE RIGHT FOR LITERARY & MUSICAL COMPOSITION

 COSTS: PURCHASE PRICE + DACs

LEGAL LIFE: LIFE OF CREATOR + 50 YEARS AFTER DEATH

AMORTIZATION & IMPAIRMENT: SAME SA PATENT

FRANCHISE RIGHT TO OPERATE BUSINESS USING ITS NAME

COST: INITIAL FRANCHISE FEE continuing fee

DACs

AMORTIZATION:
DEFINITE LIFE DEFINITE PERIOD NOT EXCEEDIN
INDEFINITE NOT AMORTIZED

IMPAIRMENT: SAME SA PATENT

CUSTOMER LISTS DATABASE CONTAINING NAME, CONTACT INFORMATION,

COST: 1. ACQUIRED SEPARATELY

PURCHASE PRICE
DACs

COMPUTER SOFTWARE
2 TYPES
1. SYSTEM SOFTWARE FOR GENERAL FUNCTION
2 APPLICATION SOFTWARE SPECIFIC FUNCTION

CLASSIFICATION AS TO PURPOSE
PPE 1. INTEGRAL PART OF PPE (OPERATING SYSTEM)
intangible asset 2. RENTAL TO OTHERS/LICENSING
inventory 3. SALE IN THE ORDINARY COURSE OF BUSINESS
WHAT IF INTERNALLY GENERATED?

research TF CP inventory
expense software
development
cost
(capitalized)
OUT PHYSICAL SUBSTANCE

AL RIGHTS

BENEFITS AND TO
BENEFITS

COURSE
 ADD: IMPORT DUTIES
ASE PRICE ADD: NON REFUNDABLE TAXES
LESS: TRADE DISCOUNTS/REBATES
(TIPSIE) (PET)
PROFESSIONAL FEES X SITE PREPATION
EMPLOYEE BENEFITS X? INITIAL DELIVERY
TESTING COSTS X? INSTALLATION & ASSEMBLY

QUIVALENT

AT FAIR VALUE

NAL AMOUNT/ZERO

1. FV OF ASSET GIVEN UP +/- BOOT

2. FV OF ASSET RECEIVED
3. CA OF ASSET GIVEN +/- BOOT

NO GAIN OR LOSS RECOGNIZED

 NEW YORK TIMES
VOGUE

EW KNOWLEDGE
NGS & OTHER KNOWLEDGE
SIBLE PRODUCT OR PROCESS ALTERNATIVE
TERNATIVE

ARE EXPENSED!!!

TIA PRE
the intangible asset so that it will be available for use or sale.
e asset and use or sell it.

e probable future economic benefits.

financial and other resources to complete the development

enditure attributable to the intangible asset during its development.

COMMERCIAL PRODUCTION
N ACTIVE MARKET EXISTING FOR I.A]

TO BUY THE I.A AT THE END OF THE U.L

LE FOR USE
WHICHEVER IS EARLIER
OR SALE

PROBABLE
EXPRESSED
MEASURABLE
erated; can be capitalized if separate acquired

2. INTERNALLY GENERATED
LICENSING
OTHER RELATED LEGAL FEES

0 YEARS
NING LIFE LEGAL LIFE VS. USEFUL LIFE W/EVER IS SHORTER
LEGAL LIFE VS. USEFUL W/EVER IS SHORTER
OVER THE REMAINING LIFE OF OLD PATENT

OVER THE EXTENDED LIFE (INLCUDING UNAMORTIZED COST OF OLD PATENT)

NEW PATENT: OWN UL
 OLD PATENT: REM. UL

EVER THERE IS INDICATION OF IMPAIRMENT

ST ANNUALLY
EVER THERE IS INDICATION OF IMPAIRMENT

TINGUISH A PRODUCT FROM OTHERS

2. INTERNALLY GENERATED
FILING FEES
REGISTRY FEES
OTHER EXP INCURRED TO SECURE THE TRADEMARK

EWABLE

USEFUL LIFE WHICHEVER IS SHORTER

EVER THERE IS INDICATION OF IMPAIRMENT

2. WHENEVER THERE IS INDICATION OF IMPAIRMENT

CAL COMPOSITION
ARS AFTER DEATH

A PATENT
AFAR!!! FAR!!
franchisor franchisee

continuing fee expensed!!!

OD NOT EXCEEDING 20 YRS VS. USEFUL LIFE WHICHEVER IS SHORTER

T INFORMATION, ORDER HISTORY …

2. INTERNALLY GENERATED
EXPENSED

FUNCTION
OF OLD PATENT)
1. Which statement is incorrect regarding intangible assets?
a. Intangible assets are identifiable non-monetary assets without physical substance.
b. The recognition of an item of as an intangible asset requires an entity to demonstrate that the item
meets the definition of an intangible asset and the criteria for recognition.
c. An intangible asset shall be measured initially and subsequently at cost.
d. Intangible assets are presented as a separate line item in the statement of financial position.

2. The critical attributes of an intangible asset include identifiability, control over the resource and existence
of future economic benefits. Which statement pertains to identifiability?
a. The asset is separable or arising from contractual or other legal rights.
b. The entity has the power to obtain benefits from the asset.
c. The use of the asset will generate revenues or reduce future costs.
d. All of these.

3. Which of the following will most likely qualify for recognition as intangible asset?
a. A team of skilled staff PAR 15
b. Talented manager
c. Customer loyalty PAR 16
d. Knowledge protected by legal rights

4. An intangible asset shall be recognized if, and only if:

a. It is probable that the expected future economic benefits that are attributable to the asset will flow
to the entity.
b. The cost of the asset can be measured reliably.
c. Both a and b.
d. Neither a nor b.

5. Expenditures that do not satisfy the recognition criteria are recognized as

a. In general, expenses when they are incurred.
b. In business combinations, part of the amount attributed to the goodwill recognized at the acquisition date.
c. Either a or b
d. Neither a nor b

6. Expenditure on items that cannot be distinguished from the cost of developing the business as whole is
not recognized as intangible asset. Those items include:
I. Brands
II. Mastheads
III. Publishing titles
IV. Customer lists
a. I, II and IV only b. II, and IV only c. II, III and IV only

7. The probability recognition criterion is always considered to be satisfied for intangible assets
a. Acquired separately
b. Acquired in a business combination
c. Generated internally
 d. Both a and b

8. An intangible asset arising from development shall be recognized if, and only if, an entity can demonstrate:
I. The technical feasibility of completing the intangible asset so that it will be available for use or sale.
II. Its intention to complete the intangible asset and use or sell it.
III. Its ability to use or sell the intangible asset.
IV. How the intangible asset will generate probable future economic benefits.
V. The availability of adequate technical, financial and other resources to complete the development
and to use or sell the intangible asset.
VI. Its ability to measure reliably the expenditure attributable to the intangible asset during its development.
a. I, II, III, IV, V and VI. c. I, II, III, IV and V only.
b. I, II, IV and VI only. d. I, IV and VI only.

9. Research is original and planned investigation undertaken with the prospect of gaining new scientific
or technical knowledge and understanding. Examples of research activities do not include
a. Activities aimed at obtaining new knowledge.
b. The search for, evaluation and final selection of, applications of research findings or other knowledge.
c. The search for alternatives for materials, devices, products, processes, systems or services.
d. The design, construction and testing of a chosen alternative for new or improved materials, devices,
products, processes, systems or services.

10. Development is the application of research findings or other knowledge to a plan or design for the
production of new or substantially improved materials, devices, products, processes, systems or services
before the start of commercial production or use. Examples of development activities do not include
a. The design, construction and testing of preproduction or pre-use prototypes and models.
b. The design of tools, jigs, molds and dies involving new technology.
c. The design, construction and operation of a pilot plant that is not of a scale economically feasible for
commercial production.
d. The formulation, design, evaluation and final selection of possible alternatives for new or improved
materials, devices, products, processes, systems or services.

11. Which statement is correct regarding research and development expenditures?

a. Expenditure on research may be capitalized.
b. All development expenditures should be capitalized.
c. 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 development phase only.
d. Expenditure on an intangible item that was initially recognized as an expense shall not be recognized
as part of the cost of an intangible asset at a later date.

12. Joy Corp. is engaged in a research and development project to produce a new product. In the year ended
Dec. 31, 2021, the entity spent P1,200,000 on research and concluded that there were sufficient
grounds to carry the project on to its development stage and a further P750,000 had been spent on
development. At that date management had decided that they were not sufficiently confident in the ultimate
profitability of the project and wrote off all the expenditure to date to the income statement. In 2022
 further direct development costs have been incurred of P800,000 and the development work is now almost
complete with only an estimated P100,000 of costs to be incurred in the future. Production is expected to
commence within the next few months. Unfortunately, the total trading profit from sales of the new product
is not expected to be as good as market research data originally forecasted and is estimated at only
P1,500,000. Assuming the other criteria given in PAS 38 are met, how much should be capitalized as of Dec.
31, 2022?
a. P1,650,000 b. P1,550,000 c. P900,000 d. P800,000

13. Nasugbu Company incurred the following costs during the current year:
Quality control during commercial production, including routine testing of products
Laboratory research aimed at discovery of new knowledge
Testing for evaluation of new products
Modification of the formulation of a plastic product
Engineering follow-through in an early phase of commercial production
Adaptation of an existing capability to a particular requirement or customer's need
as a part of continuing commercial activity
Trouble-shooting in connection with breakdowns during commercial production
Searching for applications of new research findings

What is the total amount Nasugbu should report as research and development expense?
a. 137,000 b. 169,000 c. 198,000 d. 213,000

14. Cavinti Company provided the following information relevant to the research and development
expenditures for the current year:
Current period depreciation on the building housing R and D activities
Cost of market research study
Current period depreciation on a machine used in R and D activities
Salary of R and D director
Salary of Vice-President who spends ¼ of his time overseeing R and D activities
Pension costs for salary of R and D director
Pension costs for salary of Vice-President
The R and D expense for the current period should be
a. 3,875,000 b. 5,750,000 c. 4,875,000 d. 3,800,000

15. Which statement is incorrect regarding the cost 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.
TOTAL PAYMENT 500,000
CPE 450000
 INTEREST EXPENSE TO BE AMORTIZE OVER THE PERIOD 50,000

16. Directly attributable costs of preparing the asset for its intended use do not include
a. Costs of employee benefits (as defined in PAS 19) arising directly from bringing the asset to its
working condition.
b. Professional fees arising directly from bringing the asset to its working condition.
c. Costs of testing whether the asset is functioning properly.
d. Administration and other general overhead costs.

17. The cost of internally generated intangible asset includes the following, except
a. Cost of materials and services used or consumed in generating the intangible asset
b. Cost to register a legal right
c. Salaries, wages and other employment related costs of personnel directly engaged in generating the asset
d. Expenditure on training staff to operate the asset

18. Which of the following describes a patent?

a. It gives the holder exclusive right to use, manufacture, and sell a product or a process
without interference or infringement by others.
b. A word, phrase, or symbol that distinguishes or identifies a particular entity or product.
c. The exclusive and assignable legal right, given to the originator for a fixed number of years, to print,
publish, perform, film, or record literary, artistic, or musical material.
d. A contractual arrangement under which the franchisor grants the franchisee the right to sell
certain products or services, to use certain trademarks or trade names, or to perform certain
functions, usually within a designated geographical area.

19. Batangas Company purchased a patent from the inventor, who asked P110,000 for it. Batangas paid
for the patent as follows: cash, P40,000; issuance of 1,000 shares of its own ordinary shares, par P10
(market value, P20 per share); and a note payable due at the end of three years, face amount, P50,000,
noninterest-bearing. The current interest rate for this type of financing is 12 percent. Batangas Company
should record the cost of the patent at
a. P110,000 b. P 98,800 c. P95,590 d. P85,590

CASH 40000 CASH PURCHASE 1. FV OF ASSET RECEIVED

SHARES (1000X20) 20000 SHARE BASED PYMT 2. FV SHARES
PV OF NP(50KX.7118) 35590 DEFERRED SETTLEMENT 3. PAR VALUE OF SHARES
COST OF PATENT 95590
PATENT 95590
TOTAL PYMT 110000 DISC ON NP 14410
COST OF PATENT 95590 CASH
DISC ON NP 14410 ORD SHARE
SHARE PRE

20. Which statement is correct regarding the amortization of an intangible asset?

I. The cost less residual value of an intangible asset with a finite useful life should be amortized over that life
 II. An intangible asset with an indefinite useful life should not be amortized.
III. The maximum amortization period cannot exceed twenty years.
a. I only b. I and II only c. I and III only d. Neither I, II nor III

21. A consideration not relevant in determining the useful life of the intangible asset is the
a. The period of control over the asset and legal or similar limits on the use of the asset
b. Technical, technological, commercial or other types of obsolescence
c. Expected actions of competitors or potential competitors
d. Initial cost

22. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless:
a. There is a commitment by a third party to purchase the asset at the end of its useful life.
b. There is an active market for the asset and residual value can be determined by reference to
that market and it is probable that such a market will exist at the end of the asset’s useful life.
c. Either a or b.
d. Neither a nor b.

23. The method of amortization used for an intangible asset with a finite life
a. Need not reflect the pattern of use of the asset
b. Should be based on revenue that is generated by an activity that includes the use of the asset
c. Should always be the straight-line method
d. Should be the straight-line method if the pattern of use cannot be determined reliably

24. Which statement is correct regarding subsequent expenditures on intangible assets?

a. The nature of intangible assets is such that, in many cases, there are additions to such an asset
or replacements of part of it.
b. Most subsequent expenditures are likely to enhance the expected future economic benefits embodied in
an existing intangible asset that meet the definition of an intangible asset and the recognition criteria.
c. Expenditures incurred after the initial recognition of an acquired intangible asset or after completion
of an internally generated intangible asset are rarely recognized in the carrying amount of an asset.
d. All of these.

25. Gooden Enterprises Inc. developed a new machine for manufacturing baseballs. Because the machine is
considered very valuable, the company had it patented. The following expenditures were incurred in
developing and patenting the machine.
Purchase of special equipment to be used solely for development of the
new machine
Research salaries and fringe benefits for engineers and scientists
Cost of testing prototype
Legal costs for filing of patent
Fees paid to government patent office
Drawings required by patent office to be filed with patent application
Gooden elected to amortize the patent over its legal life. At the beginning of the second year, Gooden
Enterprises paid P240,000 to successfully defend the patent in an infringement suit. At the beginning of the
fourth year Gooden determined that the remaining estimated useful life of the patent was five years.
 The carrying amount of the patent at the end of fourth year is
a. 135,320 b. 131,100 c. 307,109 d. 39,800

26. An entity purchases a trademark and incurs the following costs in connection with the trademark:
One-time trademark purchase price
Nonrefundable taxes
Training sales personnel on the use of the new trademark
Research expenditures associated with the purchase of the
new trademark
Legal costs incurred to register the trademark
Salaries of the administrative personnel

Assuming that the trademark meets all of the applicable initial asset recognition criteria, the entity
should recognize an asset in the amount of
a. 100,000 b. 115,500 c. 146,500 d. 158,500

27. The legal life of trademark is

a. Ten years INDEFINITE
b. Twenty years
c. Seventeen years
d. The life of the creator plus fifty years

28. On Jan. 1, 2022, Sassou Corp. acquired a copyright on a book of photographs from the estate of a
worldrenowned photographer who died in late Dec. 2021, for a price of P500,000. Sassou’s CEO knows that
copyrights normally cover the lifetime of the artist plus 50 years, but she has heard of a recent court case that
extended the legal life by an additional 20 years. Other similar books sold by Sassou for deceased
photographers typically remain popular for only 10 years. The carrying amount of the copyright at Dec.
31, 2022 should be
a. 500,000 b. 490,000 c. 492,857 d. 450,000

500000 X9/10
29. On Jan. 1, 2022, Five Corp. signed an agreement to operate as franchisee of Clear Copy Service, Inc. for an
initial franchise of P680,000. Of this amount, P200,000 was paid when the agreement was signed and the
balance was payable in four annual payments of P120,000 each, beginning Jan. 1, 2023. The agreement
provides that the down payment is not refundable and no future services are required of the franchisor.
The implicit rate for loan of this type is 14%. The agreement also provides the 5% of the revenue from the
franchise must be paid to the franchisor annually. Five’s revenue from the franchise for 2022 was
P8,000,000. Five estimates the useful life of the franchise to be ten years. The carrying amount of franchise
as of Dec. 31, 2022 is
a. P494,680 b. P538,733 c. P549,644 d. P612,000

initial franchise fee:

initial payment 200000
PV of balance [120K x 2.9137] 349644
1/1/2022 initial franchise fee 549644 x9/10 494679.6
 dec 31 2022

30. UR Company purchased a customer database and a formula for a new fuel substitute for diesel fuel for a
total of P100,000. UR Company uses the expected cash flow approach for estimating the fair value of
these two intangibles. The appropriate interest rate is 5%. The potential future cash flows from the two
intangibles, and their associated probabilities, are as follows:
Customer Database:
Outcome 1 - 20% probability of cash flows of P10,000 at the end of each year for 5 years.
Outcome 2 - 30% probability of cash flows of P2,000 at the end of each year for 4 years.
Outcome 3 - 50% probability of cash flows of P200 at the end of each year for 3 years.

outcome 1 pfv 4.3295 x 10,000 43295 20% 8659

Formula:
Outcome 1 - 10% probability of cash flows of P50,000 at the end of each year for 10 years.
Outcome 2 - 30% probability of cash flows of P30,000 at the end of each year for 4 years.
Outcome 3 - 60% probability of cash flows of P10,000 at the end of each year for 3 years.
How much should be recognized as customer database?
a. P11,060 b. P13,137 c. P11,295 d. P 0
prob weighted pb
database 11060 0.11294589 11294.5886
formula 86863 0.88705411
97923 100000

31. Which statement is incorrect regarding intangible assets contained in or on a physical substance such as
a compact disc (in the case of computer software), legal documentation (in the case of a license or patent)
or film?
a. In determining whether an asset that incorporates both intangible and tangible elements should be
treated property, plant and equipment or as an intangible asset, an entity uses judgment to assess
which element is more significant.
b. Computer software for a computer-controlled machine tool that cannot operate without that specific
software is an integral part of the related hardware and it is treated as property, plant and equipment.
c. When the software is not an integral part of the related hardware, computer software is treated as
an intangible asset.
d. The operating system of a computer is treated as an intangible asset.

32. On Jan. 1, 2022 an entity purchased a new software package to operate its production equipment for
P600,000, including P50,000 refundable purchase taxes. The purchase price was funded by incurring a
loan of P605,000 (including P5,000 loan origination fees). The loan is secured against the software licenses.
In Jan. 2022 the entity incurred the following costs in customizing the software so that it is more suited to
the systems used by the entity:
 • Labor – P120,000
• Depreciation of plant and equipment used to perform the modifications – P15,000.
In Jan. 2022 the entity’s production staff were trained in how to operate the new software. Training costs
included:
• Cost of an expert external instructor – P7,000
• Labor – P3,000.
In Feb. 2022 the entity’s production team tested the software and the information technology team made
further modifications necessary to get the new software to function as intended by management. The
following costs were incurred in the testing phase:
• Material, net of P3,000 recovered from the sale of the scrapped output – P21,000
• Labor – P11,000
• Depreciation of plant and equipment while it was used to perform the modifications – P5,000.
The new software was ready for use on Mar. 1, 2022. However, because of low initial order levels, the entity
incurred a loss of P23,000 on operating the software during March.
What is the cost of the software?
a. 550,000 b. 685,000 c. 722,000 d. 732,000

33. Pagsanjan Company incurred costs to develop and produce a routine, low-risk computer software product
as follows:
Completion of detail program design
Cost incurred for coding and testing to establish technological feasibility
Other coding costs after establishment of technological feasibility
Other testing costs after establishment of technological feasibility
Costs of producing product masters for training materials
Duplication of computer software and training materials from product master
Packaging product
What amount should be capitalized as software cost subject to amortization?
a. 7,500,000 b. 9,500,000 c. 4,500,000 d. 8,000,000

34. On Jan. 1, 2022, Pila Company had capitalized cost of P10,000,000 for a new computer software product
with an economic life of 4 years. Sales for 2022 for the software product amounted to P4,000,000. The total
sales of the software over its economic life are expected to be P20,000,000. However, the pattern of
the future sales from the computer software cannot be determined reliably. Pila should record amortization
of computer software in 2022 at
a. 2,500,000 b. 2,000,000 c. 5,000,000 d. 0
10M/4

35. Betterword Company is engaged in developing computer software. The following costs were incurred
during the current reporting period:
Salaries of programmers doing research
Expenses related to projects prior to establishment of technological feasibility
Expenses related to projects after technological feasibility has been established
but before software is available for production
Amortization of capitalized software development costs
 Costs to produce and prepare software for sale sales
cogs
Additional data: gross profit
Sales of products for the year expenses
Beginning inventory profit b4 tax
Portion of goods available for sale sold during the year
Determine the company’s profit before tax.
a. P 66,570 b. P111,580 c. P55,870 d. P76,810

36. An asset representing the future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized is IFRS 3
a. Goodwill b. Patent c. Trademark d. Customer list

37. Goodwill may be recorded when:

a. It is identified within a company.
b. One company acquires another in a business combination.
c. The fair value of a company’s assets exceeds their cost.
d. A company has exceptional customer relations.

38. Internally generated goodwill is prohibited from recognition in the financial statements of an entity.
The reason for this treatment is that:
a. Goodwill is not identifiable.
b. Goodwill is not measurable.
c. It is not comparable to any other intangible assets.
d. It is not prudent to recognize intangible assets.

39. RGW Industries purchased the net assets of SP Company for P1,300,000. A schedule of the net assets
of SP Company, as recorded on SP Company's books at the time of the acquisition, is as follows:
Assets
Cash P 31,000
Receivables 250,000
Inventory 302,000
Land, buildings, and equipment (net) 350,000
Total assets P933,000
Liabilities
Current liabilities P 90,000
Long-term debt 185,000
Total liabilities P275,000
Net assets (book value) P658,000

The following schedule shows the differences between the recorded costs and market values of the assets of
SP Company at the date of the acquisition:
 Determine the amount of goodwill to be recognized on the acquisition.
a. 642,000 b. 464,000 c. 74,000 d. 164,000

40. Acquiree Corporation's pretax accounting income for the year 2022 was P850,000 and included the
following items:
Impairment of goodwill P60,000
Amortization of identifiable intangibles 57,000
Depreciation on building 80,000
Extraordinary losses 44,000
Extraordinary gains 150,000
Profit-sharing payments to employees 65,000
additional depreciation 80000*3/2 120000

Acquirer Corporation is seeking to purchase Acquiree Corporation. In attempting to measure Acquiree’s

normal earnings for 2022, Acquirer determines that the fair value of the building is triple the book value
and that the remaining economic life is double that used by Acquiree. Acquirer would continue the
profitsharing payments to employees. What is the normal earnings (for purposes of computing goodwill) of
Acquiree Corporation for the year 2022?
a.764,000 b. 804,000 c. 844,000 d. 954,000

41. Liliw Company engaged your services to compute the goodwill in the purchase of Calauan Company which
provided the following:
Net Income Net Assets
2019 1,400,000 6,000,000
2020 1,600,000 8,000,000
2021 2,000,000 8,800,000
2022 2,200,000 9,200,000
Total 7,200,000 32,000,000

It is agreed that goodwill is measured by capitalizing excess earnings at 25% with normal return on average
net assets at 15%. How much is the purchase price for Calauan Company?
a. 11,600,000 b. 11,200,000 c. 10,400,000 d. 11,000,000

42. The owners of Majayjay Company are planning to sell the business to new interests. The cumulative net
earnings for the past 5 years was P9,500,000. The current value of net assets of Majayjay Company was
P20,000,000. Goodwill is determined by capitalizing average earnings at 8%. What is the amount of
goodwill?
 a. 1,900,000 b. 3,750,000 c. 1,700,000 d. 1,250,000

43. An investor purchased Lemery Travel Corporation. Lemery has one asset whose value exceeds its book
value by P10,000. Lemery's Equity is P80,000. The investor agreed with Lemery that its excess earnings
would last for 10 years. Lemery's average income for negotiation purposes is P40,000 and the industry
average rate of return is 30% on market value of net assets. Using the "present value of excess earnings"
approach to the calculation of goodwill and an appropriate discount rate of 10%, what is the purchase
price paid for Lemery?
a. 335,782 b. 220,000 c. 169,880 d. 79,880

44. Which of the following intangible assets should be shown as a separate item on the statement of financial
position?
a. Goodwill b. Franchise c. Patent d. Trademark

45. An entity shall disclose the following for each class of intangible assets, distinguishing between internally
generated intangible assets and other intangible assets:
I. Whether the useful lives are indefinite or finite and, if finite, the useful lives or the amortization rates used
II. The amortization methods used for intangible assets with finite useful lives
III. The gross carrying amount and the accumulated amortization (aggregated with accumulated
impairment losses) at the beginning and end of the period
IV. The line item(s) of the statement of comprehensive income in which any amortization of intangible
assets is included
V. A reconciliation of the carrying amount at the beginning and end of the period
a. I, II, III IV and V b. I, II, III and IV only c. I, II and III only

46. An entity shall disclose

a. A description of any fully amortized intangible asset that is still in use.
b. A brief description of significant intangible assets controlled by the entity but not recognized as
assets because they did not meet the recognition criteria in PAS 38.
c. The aggregate amount of research and development expenditure recognized as an expense during the
period.
d. All of the above.

END
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gible assets
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during its development.

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were sufficient
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2,400,000 600,000
50,000 50,000
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24,000
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P1,500,000 expensed
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2,500,000
2,000,000
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1,000,000 inv

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should record amortization

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P235,000
78,400

49,500
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P515,000
142,000
60%

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identifiable
unidentifiable

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850000
60000

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804000
to measure Acquiree’s
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normal return on average

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Majayjay Company was
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