INTANGIBLE ASSETS: GOODWILL P500,000. Other assets are properly appraised.

The patent has a

remaining life of 5 years. The earnings of the entity are expected to
Source: Intermediate Accounting 1 by Valix (2021 ed) increase 10% more than the average earnings of the past three
years before taking into consideration the amortization of the patent
PROBLEM 33-1 cost.
Judicature Company purchased another entity for P7,500,000 cash. Required:
As schedule of the fair value of the acquired entity’s assets and
liabilities is prepared as of the purchase date Compute the goodwill under the following methods:

Cash 50,000 a. Average future earnings are capitalized at 8%.

Accounts Receivable 800,000 b. Goodwill is measured at the average excess earnings capitalized
1,350,00 at 10% with normal rate at 8%.
Inventory 0 c. Goodwill is measured at the present value of the average excess
4,300,00 6,500,00 earnings discounted at 10% for four years with normal rate at 8%.
Property, plant and equipment 0 0 The present value of an ordinary annuity of 1 for 4 years at 10%
Accounts payable 900,000 is 3.17.
1,000,00 1,900,00
Note payable - bank (long-term) 0 0 PROBLEM 33-5
4,600,00
Net assets at fair value 0 England Company assembled the following data relative to a certain
entity in determining the amount to be paid for net assets and
goodwill:
Required:
1. Determine the amount of goodwill using the residual approach. 2,600,00
2. Prepare journal entry to record the purchase of the entity. Assets at fair value before goodwill 0
Liabilities 900,000
PROBLEM 33-2 1,700,00
Java Company purchased an entity for P6,000,000 cash at the Shareholders' equity 0
beginning of the current year. The carrying amount and fair value of
the assets of the acquired entity on the date of acquisition are: Net earnings after elimination of unusual or infrequent items:

Carrying amount Fair value 2017 200,000

Cash 50,000 50,000 2018 230,000
Accounts receivable 500,000 500,000 2019 300,000
Inventory 1,000,000 1,500,000 2020 250,000
Patent 0 250,000 2021 270,000
Property, plant and equipment 2,000,000 3,000,000
Required:
In addition, the acquired entity had accounts payable only totaling Calculate the amount of goodwill under the following:
P2,000,000 at the time of acquisition. The acquired entity has no
other separately identifiable intangible assets. 1. Average earnings are capitalized at 10%.
2. A return of 8% is considered normal on net assets at fair value.
Required: Excess earnings are capitalized at 15%.
1. Determine the amount of goodwill using the residual approach. 3. A return of 10% is considered normal on net assets at fair value.
2. Prepare journal entry to record the purchase of the entity. Goodwill is measured at 5 years excess earnings.
4. A return of 10% is considered normal on net assets at fair value.
PROBLEM 33-3 Excess earnings are expected to continue for 10 years.
Goodwill is measured by the present value method using a 12%
Mayer Company purchased another entity for P8,000,000. The rate. The present value of an ordinary annuity of 1 at 12% for 10
assets and liabilities of the acquiree at fair value are: years is 5.65.
Cash 1,000,000 PROBLEM 33-6
Inventory 500,000
In-process research and development 5,000,000 Brisbane Company has recently diversified by taking over the
Assembled workforce 1,200,000 operations of Darwin Company at a cost of P9,000,000.
Accounts payable 2,600,000
Notes payable 400,000 Darwin Company manufactures and sells a cleaning cloth called the
“Superswipe” which was developed by highly trained and innovative
Required: research staff.
1. Determine the amount of goodwill. The unique nature of the coating used on the “Superswipe” has
2. Prepare journal entry to record the acquisition. resulted in Darwin Company acquiring a significant share of the
South African market.
PROBLEM 33-4
A recent expansion into the equatorial African market has proved
Meek Company is considering the acquisition of another entity. The
successful.
following data relate to the acquiree:
As a result of the takeover, Brisbane Company acquired the following
Shareholders’ equity 5,000,000
assets and liabilities at fair value:
Earnings for prior three years 1,500,000
Land 3,500,000
The acquiree has a valuable patent which is not recorded. If the Machinery 2,000,000
entity is sold, the patent would be transferred to the buyer for Inventory 1,800,000
 Accounts receivable 700,000 value of identifiable intangible assets exceeded carrying amount by
Accounts payable 3,000,000 P450,000.

In addition, Darwin Company owned, but had not recognized, the

following:

 Trademark – “Superswipe” with fair value of P1,000,000. What amount of goodwill should be recognized by the acquirer?
 Patent – Formula for the special coating with fair value of
P500,000. A 1,800,000
B 1,200,000
The research staff of Darwin Company agreed to join the staff of C 750,000
Brisbane Company and will continue to work on a number of projects D 0
aimed at producing specialized version of the “Superswipe”.

Required: PROBLEM 33-10

1. Determine the goodwill arising from the acquisition. At the current year-end, Clever Company purchased for P4,000,000
2. Prepare journal entry to record the acquisition. cash all of the outstanding ordinary shares of another entity when the
statement of financial position of the acquiree showed net assets of
PROBLEM 33-7 P3,200,000.
High Company purchased for cash at P50 per share all 150,000 The acquiree revealed the following fair value and carrying amount of
ordinary shares outstanding of another entity. The statement of assets and liabilities:
financial position of the acquiree on the date of acquisition showed
net assets with a carrying amount of P6,000,000. Carrying amount Fair value
Property, plant and equipment, net 5,000,000 5,750,000
The fair value of property, plant, and equipment on same date was Other assets 500,000 0
P800,000 in excess of carrying amount. Long-term debt 3,000,000 2,800,000
What amount should be recorded as goodwill on the date of
As a result of the transaction, what amount should be reported as
purchase?
goodwill at year-end?
A 1,500,000
B 800,000 A 350,000
C 700,000 B 250,000
D 0 C 750,000
D 800,000

PROBLEM 33-8
PROBLEM 33-11
Casanova Company purchased another entity for P5,000,000 cash.
Wella Company acquired all of the outstanding ordinary shares of an
The following carrying amount and fair value were associated with
acquiree paying P7,400,000 cash. The carrying amount and fair
this acquisition:
value of the assets and liabilities of the acquiree were:
Carrying amount Fair value Carrying amount Fair value
Accounts receivable 2,000,000 2,000,000 Accounts receivable 1,080,000 975,000
Inventory 1,000,000 500,000 Inventory 1,620,000 2,400,000
Government contract 0 1,000,000 Property, plant and equipment 5,400,000 6,975,000
Accounts payable 1,800,000 1,800,000
Equipment 400,000 500,000 Bonds payable 2,700,000 2,475,000
Short-term loan (2,000,000.00 (2,000,000.00
payable ) )
What amount of goodwill should be reported as a result of the
Net assets 1,400,000 2,000,000 acquisition?

The fair value associated with the government contract of the A 3,800,000
acquiree is not based on any legal or contractual relationship. In B 1,325,000
addition, for obvious reason, there is no open market trading for an C 2,300,000
D 0
intangible of this sort.

What amount should be recognized as goodwill arising from the

PROBLEM 33-12
acquisition?
Brewer Company acquired all of the outstanding ordinary shares of
A 3,000,000
an acquiree paying P12,000,000 cash. The carrying amount and fair
B 3,600,000
C 4,000,000 value of the assets and liabilities of the acquiree were:
D 0 Carrying amount Fair value
Accounts receivable 1,800,000 2,000,000
PROBLEM 33-9 Inventory 2,700,000 5,000,000
Property, plant and equipment 10,000,000 13,000,000
Flair Company purchased another entity for P8,000,000 at year-end. Accounts payable 3,000,000 3,000,000
The carrying amount of the acquiree’s net assets on the date of Bonds payable 4,500,000 3,500,000
purchase is P6,200,000.
What amount should be recognized as gain on bargain purchase?
An analysis indicated that the fair value of the acquiree’s tangible
assets exceeded the carrying amount by P600,000, and the fair A 2,500,000
 B 8,000,000 A 10,800,000
C 1,500,000 B 18,000,000
D 0 C 4,800,000
D 5,400,000

PROBLEM 33-13
4. Annual average earnings are capitalized at 25%?
At year-end, Bliss Company purchased the net assets of another
entity for P6,000,000. On the date of the transaction, the acquiree A 1,600,000
had P2,000,000 of liabilities. B 3,600,000
C 4,400,000
The assets of the acquiree at fair value were P3,000,000 for current D 2,000,000
assets and P6,000,000 for noncurrent assets.
5. Excess earnings are discounted at 12% for 5 years? The PV of
How should the purchase be accounted for? an ordinary annuity of 1 for 5 years at 12% is 3.60.
A Retained earnings should be credited for P1,000,000. A 12,960,000
B Gain on bargain purchase should be credited for P1,000,000. B 10,800,000
C The current assets should be reported at P3,000,000 and the C 5,760,000
noncurrent assets at P5,000,000. D 7,200,000
D Negative goodwill should be credited for P1,000,000.

PROBLEM 33-16
PROBLEM 33-14
1. Which condition must be met for an item to be recognized as an
Sarrah Company is interest in computing the goodwill to be intangible asset other than goodwill?
recognized in the purchase of ABC Company in January 2022. The
following information was taken from the records of ABC Company: A The fair value can be measured reliably.
B The item is part of an activity aimed at gaining new scientific
Net Income Net Assets or technical knowledge.
2017 360,000 1,600,000 C The item is expected to be used in the production.
2018 388,000 1,800,000 D The item is nonmonetary, identifiable and lacks physical
2019 288,000 1,900,000 substance.
2020 380,000 2,000,000
2021 394,000 2,100,000 2. An intangible asset is identifiable when
1,810,000 9,400,000
A It is separable
B It arises from contractual and other legal right.
Goodwill is measured by capitalizing excess earnings at 40% with
C It is either separable or it arises from contractual and other
normal return on average net assets at 10%. legal right.
What amount should be recorded as acquisition cost of ABC D It is neither separable nor it arises from contractual and other
legal right.
Company?
A 2,535,000 3. The recognition criteria for an intangible asset include which of
B 2,100,000 the following conditions?
C 2,315,000
D 2,305,000 A The intangible asset must be measured at cost.
B The cost can be measured reliably.
C It is probable that future economic benefit will arise from use.
PROBLEM 33-15 D It is probable that future economic benefit will arise from use
and the cost can be measured reliably.
Guenivere Company is planning to sell the business to new interests.
The cumulative net earnings for the past five years amounted to 4. After initial recognition, an intangible asset shall be measured
P16,500,000 including expropriation loss of P1,500,000. using
The normal rate of return is 20%. The fair value of net assets of the A Cost model
entity at current year-end was P10,000,000. B Revaluation model
C Cost model or revaluation model
What is the amount of goodwill if: D Cost model or fair value model
1. Excess earnings are purchased for 5 years?
5. An entity may use the revaluation model for an intangible asset
A 8,000,000 only when
B 4,000,000
C 5,000,000 A The useful life of the intangible asset can be reliably
D 4,500,000 determined.
B An active market exists for the intangible asset.
2. Excess earnings are capitalized at 25%? C The cost of the intangible asset can be measured reliably.
D The intangible asset is a monetary asset.
A 7,200,000
B 6,400,000
C 8,000,000 PROBLEM 33-17
D 3,600,000
1. Which would not quality as an intangible asset?
3. Annual average earnings are purchased for 3 years? A Computer software
 B Registered patent D Expected action of competitors
C Copyright
D Notebook computer 6. What is the method of amortizing intangible asset?
A Straight line method, unless the pattern of the economic
benefits can be determined reliably
B Double declining balance in all circumstances
C A subjective amount of periodic amortization
D Straight line methos in all circumstances
2. Which of the following would qualify as an intangible asset? 7. The cost of an internally generated asset includes all of the
A Advertising and promotion following, except
B Tuition fees of an employee for an M.B.A program
A Cost of materials used.
C Operating loss during the initial stages of the project
B Compensation costs of personnel directly engaged.
D Legal costs paid to lawyers to register a patent
C Fees to register a legal right.
D Expenditure on training staff to operate the asset
3. Which is not a consideration in determining the useful life of an
intangible asset? 8. Operating loss incurred during the start-up years of a new entity
A Legal, regulatory or contractual provision should be
B Provision for renewal or extension
A Accounted for like any other operating loss
C Amortization method
B Written off directly against retained earnings
D Obsolescence
C Capitalized and amortized over five years
D Capitalized as an intangible asset and amortized over twenty
4. Amortization of an intangible asset with a finite useful life shall years
commence when
A It is first recognized as an asset. 9. Goodwill shall be recognized only when
B It is probable that it will generate future benefits. A It is purchased from another entity.
C It is available for the intended use. B It can be established that a definite benefit has resulted from
D The cost can be identified with reasonable certainty. good name, capable staff or reputation.
C It is acquired through the purchase of another entity.
5. Which disclosure is not required for an intangible asset? D An entity reports above normal earnings
A Useful life of the intangible asset
B Reconciliation of carrying amount at beginning and end 10. Goodwill shall be tested for impairment
C Contractual commitment for the acquisition of intangible asset A If there is an indication of impairment
D Fair value of similar intangible asset used by the competitor. B Annually
C Every five years
PROBLEM 33-18 D On the acquisition of a subsidiary

1. Intangible assets are reported

A With an accumulated amortization account
B Under property, plant and equipment
C As a separate line item
D All of these are allowed

2. Intangible assets are classified as

A Amortizable and unamortizable
B Limited life and indefinite life
C Specifically identifiable and goodwill type
D Legally restricted and goodwill type

3. Intangible assets with indefinite useful life are tested for

impairment
A Quarterly at the quarterly reporting date
B Annually at the annual reporting date
C Biannually at the reporting date
D There is no definite guideline for impairment

4. The major problem for an intangible asset is determining

A Fair value
B Separability
C Residual value
D Useful life

5. One factor that is not considered in determining the useful life of

an intangible asset is
A Residual value
B Provision for renewal or extension
C Legal life