Let’s Check

Exercise 9 -
1. Which of the following statements best describes the term significant influence?
a. The holding of a significant proportion of the share capital in another entity.
b. The contractually agreed sharing of control over an economic entity.
c. The power to participate in the financial and operating policy decision of an entity.
d. The mutual sharing of the risks and rewards of a combined entity.

2. If an associate has outstanding cumulative preference shares, held by outside interests, the investor
computes its share of profits or losses
a. After adjusting for preference dividends which were actually paid during the year.
b. Without regard for preference dividends.
c. After adjusting for the preference dividend only when declared.
d. After adjusting for the preference dividends, whether or not the dividends have been declared.

3. How goodwill arising on the acquisition of an associate dealt with in the financial statements?
a. It is amortized.
b. Its impairment tested individually.
c. It is written off against profit or loss.
d. It is not recognized separately within the carrying amount of the investment.

4. Investments in associates must be tested for impairment when the entity uses
a. The cost model, equity method, or fair value model.
b. The cost model or the equity method.
c. The cost model or the fair value model.
d. The equity method or the fair value model.

5. An SME shall account for investments in associate after initial recognition using
a. Either cost or fair value model and using same policy for all investments in associates.
b. Either cost model or fair value model and the model can be elected on an investment by
investment basis.
c. Any of the cost model, equity method, or fair value model and using the same accounting policy
for all investment in associates.
d. Any of the cost model, equity method, or fair value model and the model can be elected on an
investment by investment basis.

Exercise 10 -
1. A land is held by a subsidiary to earn rentals under an operating lease from the parent. The parent
manufactures products in the rented building. The fair value of the building can be measured reliably
without undue cost or effort on an ongoing basis. What is the accounting treatment of the building?

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 a. Accounted for as property, plant and equipment by the subsidiary and an investment property by
the group.
b. Accounted for as property, plant and equipment by both subsidiary and the group.
c. Accounted for as investment property by both the subsidiary and the group.
d. Accounted for as an investment property by the subsidiary and property, plant and equipment by
the group.

2. An SME shall measure the investment property after initial recognition

a. At fair value or using the cost-depreciation-impairment model and same accounting policy for all
investment property.
b. At fair value or using the cost-depreciation-impairment model elected item by item.
c. At fair value.
d. At fair value, for property whose fair value can be measured reliably without undue cost or effort
on an ongoing basis and the cost-depreciation-impairment model for all other investment
property.

3. Which statement is correct if the property is partly investment and partly owner-occupied?
I. If the investment and owner-occupied portions could be sold or leased out separately, the portions
shall be accounted for separately as investment property and owner-occupied property.
II. If the investment and owner-occupied portions could not be sold or leased out separately, the
property is investment property if only an insignificant portion is held for manufacturing or
administrative purposes.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

4. If owner-occupied property is transferred to investment property that is to be carried at fair value, the
difference between the carrying amount of the property and its fair value shall be
a. Included in profit or loss.
b. Included in retained earnings.
c. Included in equity.
d. Accounted for as revaluation of property, plant and equipment.

5. When an investment property under construction is completed and to be carried at fair value, the
difference between the carrying amount and fair value shall be
a. Included in profit or loss.
b. Included in retained earnings.
c. Included in equity.
d. Accounted for as revaluation of property, plant and equipment.

Exercise 11
1. Costs that are expense immediately include all of the following, except
a. Cost incurred while an item capable of operating in a manner intended by management has yet to
be brough into use, or is operated at less than full capacity.
b. Initial operating cost.
c. Cost of relocating or reorganizing part or all of an entity’s operation.
d. Professional fee arising directly from the acquisition of an item of property, plant and equipment.

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2. An SME must measure property, plant and equipment after initial recognition at
a. Cost.
b. Cost less any accumulated depreciation less any accumulated impairment losses.
c. Cost less any accumulated depreciation.
d. Cost plus the cost of day-to-day servicing.

3. Major spare parts and standby equipment which are expected to be used over a period of more than
one year shall be classified as
a. Property, plant and equipment.
b. Inventory.
c. Noncurrent investment.
d. Expense.

4. Which of the following is correct concerning recognition of property, plant and equipment?
Statement 1: Most spare parts and servicing equipment are usually carried as inventory and recognized
as expense when consumed.
Statement 2: If the spare parts and servicing equipment can be used only in connection with an item
of property, plant and equipment and their use is expected to be irregular, they are accounted for as
property, plant and equipment and are depreciated over their useful life or useful life of the related
asset, whichever is shorter.
a. I only.
b. II only.
c. Both I and II
d. Neither I nor II.

5. Which of the following terms best describes the removal of an asset from an entity’s statement of
financial position?
a. Derecognition
b. Impairment
c. Write-off
d. Depreciation

6. An entity imported machinery to install in its new factory premises before year-end. However, due to
circumstances beyond its control, the machinery was delayed by a few months but reached the factory
premises before year-end. While this was happening, the entity learned from the bank that it was being
charged interest on the loan it had taken to fund the cost of the plant. What is the proper treatment of
freight and interest expense?
a. Both expenses are capitalized.
b. Interest may be capitalized if the entity is not SME; freight is expensed.
c. Freight can be capitalized but interest cannot be capitalized unless the entity is SME.
 d. Freight can be capitalized but interest cannot be capitalized under these circumstances whether
the entity is an SME or not.

7. The cost of an item of property, plant and equipment comprises its purchase price, import duties and
nonrefundable purchase taxes, and
a. The implied interest on the debt to finance the purchase.
b. The fair value of any noncash asset surrendered to acquire the asset.

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 c. The estimated residual value of the asset.
d. All directly attributable costs necessary to bring the asset to the location and condition for its
intended use.

8. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay
P100,000 at the time of purchase and P20,000 at the end of each of the next five years. The plant asset
is measured initially at
a. The present value of a P20,000 ordinary annuity for five years.
b. P200,000.
c. P200,000 plus imputed interest.
d. P200,000 less imputed interest.

9. A forgivable loan from a government or the benefit of a government loan at NIL, or below market
interest rate is accounted for as
a. Government grant only.
b. Government assistance only.
c. Both government grant and government assistance.
d. Neither government grant nor government assistance.

10.Borrowing costs do not include

a. Interest incurred on bank overdraft.
b. Incremental administrative fees incurred in connection with raising loans.
c. Finance charges in respect of finance leases.
d. Dividends declared to equity holders.

11.An SME must recognize a government grant that imposes specified future performance conditions
a. In income when the grant proceeds are receivable.
b. In income over the periods necessary to match it with the related cost for which it is intended to
compensate on a systematic basis.
c. In income only when the performance conditions are met.
d. None of the above.

12.An SME shall capitalize all of the following as cost of property, plant and equipment, except
a. Transport cost.
b. Loan raising cost.
c. Installation cost.
d. Nonrefundable purchase tax.

13.Government assistance includes all of the following, except

a. Free technical advice.
b. Provision of guarantee.
c. Government procurement policy that is responsible for a portion of the entity’s sales.
 d. Improved irrigation water system for the benefit of an entire local community.

14.In the case of grant related to an asset, which of the following is true?
a. Record the grant at a nominal value in the first year and write it off in the subsequent year
regardless whether the entity is an SME or not.

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 b. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the
asset regardless whether the entity is an SME or not.
c. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the
asset if the entity is not an SME.
d. Record the grant as either deferred income or income depending whether there is a condition
attached to the grant or not.

15.The carrying amount of an item of property, plant and equipment shall be derecognized
I. On disposal.
II. When no future economic benefits are expected from the use or disposal of the asset.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

Exercise 12
1. Which of the following statements is true in relation to the amortization of the intangible assets of an
SME?
I. All intangible assets, including goodwill, are amortized over the useful life.
II. All intangible assets with indefinite useful life are not amortized but tested for impairment annua
and whenever there is an indication that the intangible asset may be impaired.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

2. Under PFRS for SMEs, the cost of an intangible asset at initial recognition is measured at fair value
when
a. It is internally generated.
b. It is acquired as part of a business combination.
c. It is acquired by way of government grant.
d. If it acquired as part of a business combination or acquired by way of government grant.

3. An SME acquired a trademark that as a remaining legal life of five years but is renewable every ten
years at little cost. The useful life of the trade is
a. Five years.
b. Presumed to be 10 years, if the entity is unable to make a reliable estimate of the useful life.
c. Fifteen years.
d. Indefinite.

4. Which of the following costs should be capitalized in the year incurred if the entity is an SME?
 a. Research and development cost.
b. Cost of internally developed goodwill.
c. Organization cost.
d. Filing fee for a patent.

5. Which of the following intangible assets that could not be sold separately?

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 a. Patent
b. Copyright
c. Goodwill
d. Trademark

6. Which of the following may not be classified a “qualifying asset”?

a. A power generation plant that normally takes two years to construct.
b. An expensive private jet that can be purchased from a local vendor.
c. A toll bridge that usually takes more than a year to build.
d. A ship that normally takes one to two years to complete.

7. Estimates of future cash flows normally would cover projections over a maximum of
a. Five years.
b. Ten years.
c. Fifteen years.
d. Twenty years.

8. Which is incorrect concerning separate acquisition of an intangible asset?

a. If an intangible asset is acquired separately, the. cost of the intangible asset can usually be
measured reliably.
b. The cost of the intangible asset comprises its purchase price and any directly attributable
expenditures on preparing the asset for its intended use.
c. If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal to the
cash price equivalent.
d. The cost of an intangible asset include initial operating losses.

9. For an SME, the cost of an internally generated assets that should be expensed include all of the
following, except:
a. Cost of materials and services used in generating the intangible assets.
b. Compensation costs of personnel directly engaged in generating the asset.
c. Fees to register a legal right.
d. Expenditures on training staff to operate the asset.

10.The amortization method used shall reflect the pattern in which the asset’s economic benefits are
consumed by the entity. If such pattern cannot be determined reliably, what is the amortization
method used?
a. Straight line
b. Production output
c. Diminishing balance method
d. Ratio of current year’s sales to the total expected sales
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Let’s Analyze

Problem 10
On January 1, 2021, Amia Corporation paid P40 million for 2.5 million shares of Lee Corporation’s ordinary
shares. The investment represents a 25% interest in the net assets of Lee Corporation and gave Amia
Corporation the ability to exercise significant influence over Lee Corporation’s operations. The book value of
Lee Corporation’s net assets was P150 million. The fair market value of Lee Corporation’s depreciable
assets exceeded their book value by P25 million. These assets had an average remaining useful life of 10
years. The remainder of the excess of the. cost of the investment over the book value of net assets
purchased was attributable to goodwill.

On December 15, 2021, Amia Corporation received dividends of P1.80 per share. Lee Corporation
reported net income of P25 million for the year ended December 31, 2021. The market value of Lee
Corporation’s ordinary share at December 31, 2021 was P29.25 per share.

Questions: Compute the following under the three models - cost, equity, and fair value.
1. Income from investment at December 31, 2021.
2. Carrying value of the investment at December 31, 2021

Note: Under cost model, it is assumed that the fair value is not given.

Problem 11
At the beginning of 2014, Kathleen Corporation purchased 40% of the ordinary shares outstanding of
Puerto Incorporated for P15,000,000 when the net assets of Puerto Incorporated amounted to
P30,000,000. At acquisition date, the carrying amounts of the identifiable assets and liabilities of Puerto
Incorporated were equal to their fair value, except for the following:

a. Equipment whose fair value was P7,000,000 greater than its carrying amount.
b. Inventory whose fair value was P2,500,000 greater than its carrying amount.

The equipment has a remaining life of 4 years and the inventory was all sold during 2013.

Puerto Incorporated has two classes of shares: Ordinary shares (par value, P100), 300,000 shares
outstanding; 15% cumulative preference shares (par value, P50), 100,000 shares outstanding.

The investee reported the following net income (inclusive of enter-company transactions) and payment of
cash dividend:
2014 2015
Net Income 20,000,000 35,000,000
Dividend payment 5,000,000 8,000,000
The following were the inter-company transactions between the investor and the associates:

a. In 2014, the Puerto Incorporated sold inventory to Kathleen Corporation for P750,000. The cost of
the inventory was P500,000. 50% of these inventory was still unsold at the end of 2013 and the
remainder were sold in 2015.

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b. On July 1, 2015, Kathleen Corporation sold an equipment for P900,000 to Puerto Incorporated. The
carrying amount of the equipment is P500,000 at the time of sale. The remaining life of the equipment
is 5 years and Puerto Incorporated uses the straight-line method of depreciating the equipment.

On January 1, 2016, Kathleen Corporation sold 70,000 shares of Puerto Incorporated at P260 per share.
The company incurred broker’s fee of P200,000. The sale resulted to loss of significant influence of
Kathleen Corporation over the operation of Puerto Incorporated. Kathleen designate the investment at
fair value through profit or loss on this date.

During 2014, Puerto Incorporated earned P25,000,000 net income and P10,000,000 cash dividend.

The following are the market value of Puerto Incorporated shares at year-end:

2014 - P 156.00
2015 - P 162.00
2016 - P 163.50

Questions: Compute the following under the three models - cost, equity, and fair value
1. What is the carrying value of Kathleen Corporation’s investment to Puerto Incorporated at
December 31, 2014?
2. How much is the total investment income of Kathleen Corporation at December 31, 2014?
3. What is the carrying value of Kathleen Corporation’s investment to Puerto Incorporated at
December 31, 2015?
4. How much is the total investment income of Kathleen Corporation at December 31, 2015?
5. What is the carrying value of Kathleen Corporation’s investment to Puerto Incorporated at
December 31, 2016?
6. How much is the total investment income of Kathleen Corporation at December 31, 2016?

Problem 12
Edelyn, Inc. completed the construction of a building at the beginning of 2018 for a total cost of P100
million. The building is estimated to be economically useful for 25 years. The building was constructed
for the purpose of earning rentals under operating leases. The tenants began occupying the building after
its completion. The fair value of the property can be measured reliably without under cost or effort. An
independent valuation expert was used by the company to estimate the fair value of the building on an
annual basis. According to the expert, the fair values of the building at the end of 2018, 2019, and 2020
were P105 million, P120 million, and P118 million, respectively.

Questions:
1. How much should be recognized in profit or loss in 2018 as a result of the completion of the building
at the end of 2018?
2. Compute the depreciation expense in 2019.
3. How much should be recognized in profit or loss in 2019 as a result of the fair value changes?
4. How much should be recognized in profit or loss in 2010 as a result of the fair value changes?
5. How much is the carrying value of the investment property at the end of 2018? 2019? 2020?

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 Assume that the fair value cannot be measured reliably
6. How much should be recognized in profit or loss in 2018 as a result of the completion of the building
at the end of 2018?
7. Compute the depreciation expense in 2019.
8. How much should be recognized in profit or loss in 2019 as a result of the fair value changes?
9. How much should be recognized in profit or loss in 2010 as a result of the fair value changes?
10. How much is the carrying value of the investment property at the end of 2018? 2019? 2020?

Problem 13
The Eduardo Company, an SME, started in business on January 1, 2019, by acquiring three machines
having a costs of P52,400, 40,000, and P44,000, respectively. Since that date, the company has computed
depreciation at 20% on the balance of the asset account at the end of each year, which amount has been
credited directly to the asset account. All purchases since January 2019, have been debited to the
machinery account and the cash received from sales has been credited to the account.

The following transactions took place

a. On September 30, 2019, a machine was purchased on an installment basis. The list price was P60,000,
but 12 payments of P6,000 each were made by the company. Only the monthly payments were
recorded in the machinery account starting with September 30, 2019. Freight and installation charges
of P2,000 were paid and entered in the machinery account on October 10, 2019.
b. On June 30, 2020, a machine was purchased for P80,000, 2/10, n/30, and recorded at P80,000 when
paid for on July 7, 2020.
c. On June 30, 2021, the machine acquired for P52,400 was traded for a larger one having a list price of
P93,000. Allowance of P43,000 was received on the old machine, the balance of the list price being
paid in cash and charged to the machinery account.
d. On January 1, 2022, the machine which cost P44,000 was sold for P25,000, but because the cost of
removal and crating was P1,250, the machinery account was credited with only P23,750.
e. On October 1, 2023, the machine purchased for P40,000 was sold for cash and the cash received
amounting to P8,000 was credited to the account.
f. The useful life of the machinery is 5 years.

Required:
1. Show the per book balance of machinery before any adjustments from 2019 to 2023.
2. Compute the correct balance of the machinery (gross) from 2019 to 2023.
3. Compute the correct accumulated depreciation of the machinery from 2019 to 2023.

Problem 14
Waffle Corporation, an SME, bought land and built a warehouse during 2021. It debited the following
related costs to an account Land and Building:

Land purchase P220,000

Demolition of old building 30,000
Legal fees for land acquisition 15,000
Interest on loan for the construction of warehouse
(based on the average costs incurred) 29,000
Building construction 530,000
Assessment by city for sewer connection 12,000

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 Landscaping 35,000
Equipment purchased for excavation 188,000
Fixed overhead charged to building 150,000
Insurance on building during construction 10,000
Profit on construction 120,000
Compensation for injury to construction worker 30,000
Modification to building as ordered by building inspectors 75,000
Property taxes on land paid in 2021 25,000

The following credits were made to the account:

Salvage from demolished old building P 7,000

Sale of excavation equipment 140,000

In addition, your discovered that compensation for the worker’s injury was necessary since it was not
covered by a particular insurance policy purchased by the company. Accident insurance that would have
covered the injury would have cost an additional P3,500. The modifications ordered by the building
inspectors resulted from poor planning by the company.

Required:
1. Compute the following:
a. Land
b. Building
c. Equipment
2. Prepare the necessary entries to correct the account.

Problem 15
During 2021, the controller of the Letecia Company, an SME, asked you to prepare correcting journal
entries for the following three situations:

1. Machine 1 was purchased for P400,000 on January 1, 2019. It had an estimated residual value of
P50,000 and an estimated service life of 10 years. It has been depreciated under the double-declining
balance method for 2 years. Now, at the beginning of the third year, Letecia Company has decided to
change to the straight-line method.
2. Machine 2 was purchased for P500,000 on January 1, 2016. Straight-line depreciation has been
recorded for 5 years, and the accumulated depreciation account has a balance of P250,000. The
estimated residual value remains at P50,000, but the service life is now estimated to be 1 year longer
than estimated originally.
3. Machine 3 was purchased for P200,000 on January 1, 2020. 150% declining balance depreciation has
been recorded for 1 year. The estimated residual value of the machine is P20,000 and the estimated
service life is 5 years. For two years, including the current year, the company recorded a depreciation
of P54,000 and P37,800 for 2020 and 2021, respectively.
Required:
1. Compute the following:
a. Carrying value of Machine 1, Machine 2, and Machine 3 at December 31, 2021.
b. Depreciation for 2021.
2. Prepare the necessary adjusting entries to correct the account.

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Problem 16
On January 1, 2021, Blessy Corporation, an SME, purchased a tract of land (site number 101) with a
building for P1,200,000. Additionally, Blessy paid a real state broker’s commission of P72,000, legal fees
of P12,000 and title guarantee insurance of P36,000. the closing statement indicated that the land value
was P1,000,000 and the building value was P200,000. Shortly after acquisition, the building was razed at
a cost of P150,000.

Blessy entered into a P6,000,000 fixed price contract with Guma Builders, Inc. on March 1, 2021 for the
construction of an office building on the land site 101. The building was completed and occupied on
September 30, 2022. Additional construction costs were incurred as follows:

Plans, specifications and blueprints P 24,000

Architect’s fees for design and supervision 190,000

The building is estimated to have a forty-year life from date of completion and will be depreciated using
the 150%-declining balance method.

To finance the construction cost, Perina borrowed P6,000,000 on March 1, 2021. The loan is payable in
ten annual installments of P600,000 plus interest at the rate of 14%. Blessy used part of the loan proceeds
for working capital requirements. Blessy’s average amounts of accumulated building construction
expenditures were as follows:

For the period March 1 to December 31, 2021 P1,800,000

For the period January 1 to September 31, 2022 4,600,000

Questions: Based on the above and the result of your audit, determine the following:
1. Cost of land site number 101
2. Cost of office building
3. Depreciation of office building for 2022

Problem 17
An equipment was acquired on January 1, 2017 for P5,000,000 by an SME and is expected to have a 10-
year useful life. Straight-line depreciation is used.

On January 1, 2019, the asset is appraised at a gross replacement cost of P5,625,000.

On January 1, 2022, the asset is appraised at sound value of P2,000,000.

Required:
1. Prepare the necessary entries to record the above transactions.
2. Compute the following:
a. The carrying value of the equipment at the end of 2019 and 2022.
 b. Depreciation of the equipment at the end of 2019 and 2022.

Problem 18
Presented below is the information related to equipment owned by Edgar Company, an SME, at December
31, 2021:

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 Cost 9,000,000
Accumulated depreciation to date 1,000,000
Expected future net cash flows (discounted) 7,000,000
Fair value 4,800,000

Assume that Edgar will continue to use this asset in the future. As of December 31, 2021, the equipment
was a remaining useful life of 4 years.

Requirement:
1. Record the impairment of the equipment, if any, at December 31, 2021.
2. How much is the depreciation of the equipment on 2022?
3. Assume that the fair value of the equipment at December 31, 2022 is P5,100,000, prepare the
entry to record the effect of the transaction.

Problem 19
On January 1, 2021, an SME acquired a building for P50,000,000. On December 31, 2021, management
assessed that the useful life of the building is 50 years from the date of acquisition with residual value of
P10,000,000. The fair value of the building on same date is P60,000,000. On December 31, 2023, SME
reassessed that the useful life of the building is 40 years from January 1, 2023 with residual value of
P5,000,000. The fair values of the building on December 31, 2023 is P45,000,000

Required:
1. What is the carrying amount of the building on December 31, 2021?
2. What is the depreciation for 2023?
3. What is the impairment loss for 2023?
4. What is the carrying amount of the building on December 31, 2023 after recognition of
impairment loss?

Problem 20
On January 1, 2021, the Philippine government agreed to provide Ian Corporation with a P3,000,000
three-year noninterest bearing note. There are no future performance conditions attached to the grant.
The prevailing rate of interest for the loan of this type is 10%.

Required:
1. What is the grant income for 2021?
2. What is the interest expense for 2021?

Problem 21
At the beginning of current year, an SME acquired, free of charge, a nontransferable nine-year taxi license
by way of government grant when the fair value of the taxi license was P900,000. In accordance with the
terms of the license, the entity must operate at least 10 taxis in a deprived neighborhood of the city during
that nine-year period. Failure to do so will result in the taxi license being revoked immediately. What
amount of income from the government grant should be recognized for the current year?

Problem 22
Mary Grace Company has two cash generating units. On December 31, 2020, the assets of one cash
generating unit at carrying amount are:

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Inventory 200,000
Accounts receivable 300,000
Plant and equipment 6,000,000
Accumulated depreciation 2,600,000
Patent 850,000
Goodwill 100,000

The accounts receivable is regarded as collectible and the inventory’s fair value less cost to sell is equal to
the carrying amount.

On December 31, 2020, Mary Grace Company undertook impairment testing of the cash generating unit
and determined the value in use of the unit at P4,050,000.

Required:
1. What is the impairment loss of the cash generating unit on December 31, 2020?
2. What is the amount of inventory on December 31, 2020?
3. What is the amount of Accounts Receivable on December 31, 2020?
4. What is the amount of Patents on December 31, 2020?
5. What is the amount of Plant and Equipment, net at December 31, 2020?

Problem 23
An SME incurred the following expenditures in establishing a taxi business in a local city during 2021:

May 1 General start-up cost P 25,000

June 30 Legal costs directly attributable to the acquisition of
the taxi license 40,000
July 1 Payment to the taxi licensing authority for the taxi
license, including P10,000 refundable purchase taxes 120,000
July 1 Printing business cards of the drivers 5,000
Aug. 31 Payment for an advertisement to be published monthly
for the next 12 months in the local daily newspaper 60,000

The economic life of the taxi license is 5 years from the date of acquisition on June 30, 2021 with NIL
salvage value. The taxi drivers own the vehicles which they operate under SME’s taxi license.

Required: Compute the following -

1. Carrying value of the intangible asset at December 31, 2021.
2. Amortization of the intangible asset at December 31, 2021.

Problem 24
On January 1, 2021, an SME acquired a trademark for a line of products in a separate acquisition from a
competitor for P1,000,000. The SME expected to continue marketing the line of products using the
trademark indefinitely.

An analysis of market competition and environmental trend provides evidence that the line of
trademarked products may generate net cash flows for the acquiring entity for an indefinite period.
Management is unable to estimate the useful life of the trademark.

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In 2023, a competitor unexpectedly revealed a technological breakthrough that is expected to result in a
product, that when launched by the competitor, will extinguish demand for SME’s patented product line.
Demand for SME’s patented product line is expected to remain strong until December 2023 when the
competitor is expected to launch a new product.

On December 31, 2023, SME assessed the recoverable amount of the trademark at P400,000. SME intends
to continue manufacturing the patented products until December 31, 2025.

Required: Compute the following -

1. Carrying amount of the trademark at December 31, 2021.
2. Carrying amount of the trademark at December 31, 2023.
3. Amortization at December 31, 2021.
4. Amortization at December 31, 2022.
5. Impairment, if any, at December 31, 2022.

In a Nutshell
Discuss why SMEs consider the life of the intangible as finite?

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Q&A LIST
Do you have any question for clarification?

Questions/Issues Answers

1. 1.
2. 2.

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 3. 3.
4. 4.
5. 5.

KEYWORDS INDEX

Accounting Policy Election Exchange of Assets Intangible Assets

Borrowing Costs Fair Value Model Investment in Associates
Presumed Life of
Cost Model Finite Life Intangibles
Property, plant and
Depreciation Government Grants equipment
Unrealized Holding Gain
Equity Model Impairment of Assets or Loss

Course Schedule

This section calendars all the activities and exercises, including readings and lectures, and time for making
assignments and doing other requirements.

Activity Date Where to Submit

Orientation BlackBoard LMS
Let’s Check As announced by the teacher BlackBoard LMS
Let’s Analyze As announced by the teacher BlackBoard LMS
Q&A Anytime BlackBoard LMS
1st Formative Assessment BlackBoard LMS
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