EXERCISE 12.12 (20–25 minutes)
Net assets of Terrell as reported
($575,000 – $350,000) ………………………………………….
$225,000
Adjustments to fair value
Increase in land value ……………………………………
Decrease in equipment value …………………………
Net assets of Terrell at fair value …………………………...
Selling price ………………………………………………………….
Amount of goodwill to be recorded ………………………..
The journal entry to record this transaction is as follows:
Building ………………………………………………………………..
200,000
Equipment ($175,000 – $5,000) ……………………………….
170,000
Copyright ……………………………………………………………..
120,000
Cash …………………………………………………………………….
100,000
Goodwill ……………………………………………………………….
110,000
Accounts Payable …………………………………………
Long-term Notes Payable ………………………………
Cash …………………………………………………………….
EXERCISE 12.13 (10–15 minutes)
(a)
Buildings ……………………………………………………….
75,000
Equipment ……………………………………………………….
70,000
Trademarks ……………………………………………………….
15,000
Land ………………………………………………………………………
80,000
Inventory ……………………………………………………….
Receivables ……………………………………………………….
90,000
Cash ………………………………………………………………………
50,000
Accounts Payable …………………………………………..
Notes Payable ………………………………………………..
Cash ……………………………………………………….
EXERCISE 12.13 (Continued)
(b)
Trademark Amortization Expense …………………………..
1,500
Trademarks [(€15,000 – €3,000)] X 1/4 X 6/12] ……….
EXERCISE 12.14 (15–20 minutes)
(a)
December 31, 2019
Loss on Impairment ………………………………………………..
900,000*
Copyrights ……………………………………………………..
900,000
*Carrying amount …………………
Recoverable amount ……………
(b)
Copyright Amortization Expense …………………………..
340,000*
Copyrights ……………………………………………………..
340,000
EXERCISE 12.15 (15–20 minutes)
(a)
December 31, 2019
Loss on Impairment …………………………
25,000,000*
Goodwill ………………………………….
25,000,000
*HK$360,000,000 – HK$335,000
EXERCISE 12.15 (Continued)
EXERCISE 12.16 (15–20 minutes)
(a) In accordance with IFRS, the €325,000 is a research and development
(b)
Patents ……………………………………………………….
36,000
Research and Development Expense ……………………….
74,000
Cash, Accts. Payable, etc. …………………………..
110,000
(To record research and
development costs)
Patents ……………………………………………………….
24,000
Cash, Accts. Payable, etc. …………………………..
(To record legal and administrative
costs incurred to obtain patent
#472-1001–84)
Patent Amortization Expense …………………………..
12,000
Patents ……………………………………………………….
[To record one year’s amortization
expense (€60,000* ÷ 5 = €12,000)]
EXERCISE 12.16 (Continued)
(c)
Patents ……………………………………………………….
47,200
Cash, Accts. Payable, etc. …………………………..
47,200
(To record legal cost of successfully
defending patent)
The cost of defending the patent is capitalized because the defense
was successful and because it extended the useful life of the patent.
Patent Amortization Expense …………………………..
11,900
Patents ……………………………………………………….
11,900
(To record one year’s amortization
Expense:
(d) Additional engineering and consulting costs required to advance the
design of a product to the manufacturing stage are R&D costs. As
LO: 5, Bloom: AP, Difficulty: Moderate, Time: 15-20, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 12.17 (10–15 minutes)
Depreciation of equipment acquired that will have alternate
uses in future R&D projects over
the next 5 years ($330,000 ÷ 5) ……………………………………………
$ 66,000
Materials consumed in R&D projects …………………………………….
Consulting fees paid to outsiders for R&D projects ………………..
Personnel costs of persons involved in R&D projects …………….
Indirect costs reasonably allocable to R&D projects
50,000
Total to be expensed in 2019 for research and
TIME AND PURPOSE OF PROBLEMS
Problem 12.1 (Time 15–20 minutes)
Purpose—to provide the student with an opportunity to appropriately reclassify amounts charged to a
Problem 12.2 (Time 20–30 minutes)
Purpose—to provide the student with an opportunity to compute the carrying value of a patent at three
Problem 12.3 (Time 20–30 minutes)
Problem 12.4 (Time 15–20 minutes)
Purpose—to provide the student with an opportunity to determine income statement and statement of
Problem 12.5 (Time 25–30 minutes)
Purpose—to provide the student with an opportunity to determine the amount of goodwill in a business
combination and to determine the goodwill impairment.
Problem 12.6 (Time 30–35 minutes)
SOLUTIONS TO PROBLEMS
PROBLEM 12.1
Franchises ……………………………………………………………
48,000
Prepaid Rent …………………………………………………………
24,000
Retained Earnings (Organization Costs of
€6,000 (€5,000 + €1,000) in 2014) ………………………….
6,000
Retained Earnings (€16,000 – €6,000) ……………………..
10,000
Patents (€84,000 + €12,650 + €45,000) …………………….
(€75,000 + €160,000 – €45,000) …………………………….
Goodwill ……………………………………………………………….
Intangible Assets ………………………………………….
Franchise Amortization Expense-2019 (€48,000 ÷ 8) ..
6,000
Retained Earnings- 2018 (€48,000 ÷ 8 X 6/12) …………..
3,000
Franchises ……………………………………………………
9,000
Rent Expense (€24,000 ÷ 2) ……………………………………
12,000
Retained Earnings (€24,000 ÷ 2 X 3/12) ……………………
3,000
Prepaid Rent …………………………………………………
15,000
Patent Amortization Expense …………………………………
10,777
Patents (€84,000 ÷ 10) + (€12,650 X 7/115) +
(€45,000 X 4/112) ………………………………………..
10,777
PROBLEM 12.2
(a)
Costs to obtain patent Jan. 2013 ………………
HK$59,500
2013 amortization (HK$59,500 ÷ 17) …………..
(3,500)
(b)
1/1/14 carrying value of patent …………………………..
HK$ 56,000
2014 amortization (HK$59,500 ÷ 17) ………………………….
HK$3,500
2015 amortization ……………………………………………………
3,500
(7,000)
49,000
Legal fees to defend patent 12/15 …………………………..
42,000
Carrying value, 12/31/15 ………………………………………….
91,000
Capitalized development costs 4/16 …………………………
49,000
(c)
1/1/18 carrying value …………………………..…………………..
HK$120,000
2018 amortization (HK$120,000 ÷ 5) ………………………….
HK$24,000
2019 amortization ……………………………………………………
24,000
2020 amortization ……………………………………………………
PROBLEM 12.3
(a)
SANDRO SA
Intangible Assets
December 31, 2019
Franchise, net of accumulated amortization of R$5,870
(Schedule 1) …………………………………………………………………….
R$ 52,830
Patent, net of accumulated amortization of R$2,200
(Schedule 2) …………………………………………………………………….
Trademark, net of accumulated amortization of R$6,600
(Schedule 3) …………………………………………………………………….
39,600
Total intangible assets ………………………………………………..
R$107,830
Schedule 1 Franchise
Cost of franchise on 1/1/19 (R$15,000 + R$43,700) ………………..
R$ 58,700
Cost of franchise, net of amortization …………………………..
R$ 52,830
Schedule 2 Patent
Cost of securing patent on 1/2/19 …………………………………………
R$ 17,600
Cost of patent, net of amortization ……………………………….
Schedule 3 Trademark
Cost of trademark on 7/1/16 …………………………………………………
R$ 36,000
Amortization, 7/1/16 to 7/1/19 (R$36,000 X 3/20) …………………….
(5,400)
Book value on 7/1/19 …………………………………………………………..
Cost of successful legal defense on 7/1/19…………………………...
Book value after legal defense……………………………………………..
Amortization, 7/1/19 to 12/31/19 (R$40,800 X 1/17 X 6/12) ……….
PROBLEM 12.3 (Continued)
(b)
SANDRO SA
Expenses Resulting from Selected Intangible Assets Transactions
For the Year Ended December 31, 2019
Interest expense (R$43,700 X 14%) ………………………………………
$ 6,118
Franchise amortization (Schedule 1) ……………………………………
Franchise fee (R$900,000 X 5%) …………………………………………..
45,000
Patent amortization (Schedule 2) …………………………………………
Trademark amortization (Schedule 4)…………………………………..
Total intangible assets ……………………………………………….
Note: The R$65,000 of research and development costs incurred in
developing the patent would have been expensed prior to 2019.
Schedule 4 Trademark Amortization
Amortization, 1/1/19 to 6/30/19 (R$36,000 X 1/20 X 6/12) …………
$ 900
Amortization, 7/1/19 to 12/31/19 (R$40,800 X 1/17 X 6/12) ……….
Total trademark amortization ……………………………………….
$2,100
PROBLEM 12.4
(a) Income statement items and amounts for the year ended December 31,
2019:
Research and development expenses* ……………………..
$148,000
Amortization of patent ($88,000 ÷ 10 years) ……………….
8,800
*The research and development expenses could be listed by the
($320,000 ÷ 20 years) …………………………..………………..
Salaries and employee benefits ($195,000 – $90,000) …
Other expenses ($77,000 – $50,000) ………………………….
(b) Statement of financial position items and amounts as of December 31,
2019:
Land ……………………………………………………………………….
$ 60,000
Building (net of accumulated depreciation
of $16,000) ……………………………………………………………
304,000
Patent (net of amortization of $15,400)* …………………….
72,600
Capitalized development costs ($90,000 + $50,000) ……
140,000
PROBLEM 12.5
(a) Goodwill = Excess of the cost of the division over the fair value of the
net identifiable assets:
(c) Computation of impairment:
Goodwill impairment = Recoverable amount of division less the carrying
Carrying value of division ………………………..
(d) Loss on Impairment …………………………………
$50,000
Goodwill …………………………………………..
50,000
Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 12–33
PROBLEM 12.6
(a)
MONTANA MATT’S GOLF LTD.
Intangibles Section of Statement of Financial Position
December 31, 2018
Trade name ………………………………………………………………………….
£ 10,000
Schedule 1 Computation of Value of Old Master Copyright
Cost of copyright at date of purchase …………………………..……….
£ 24,000
Amortization of Copyright for 2018 [(£24,000 ÷ 40) X 1/2 year] ……
(300)
Cost of copyright at December 31 …………………………………
£ 23,700
Schedule 2 Goodwill Measurement
Purchase price …………………………………………………
£770,000
Fair value of assets …………………………………………..
Fair value of liabilities ………………………………………
Fair value of net assets …………………………….
Value assigned to goodwill ……………………………….
Amortization expense for 2018 is £300 (see Schedule 1). There is no amor–
tization for the goodwill or the trade name, both of which are considered
indefinite life intangible assets.
Copyright (£24,000 ÷ 40) ……………………………..
Goodwill (Schedule 2) ………………………………………………………….
Total intangibles ………………………………………………………………….
£203,700
PROBLEM 12.6 (Continued)
MONTANA MATT’S GOLF LTD.
Intangibles Section of Statement of Financial Position
December 31, 2019
Trade name …………………………………………………………………………..
£ 10,000
Goodwill ……………………………………………………………………………….
Total intangibles……………………………………………………………………
Schedule 1 Computation of Value of Old Master Copyright
Cost of Copyright at date of purchase ……………………………………
£ 24,000
Cost of copyright at December 31 ………………………………….
£ 23,100
(c) Loss on Impairment ……………………………………………
87,000
Goodwill ………………………………………………………….
80,000*
Trade name (£10,000 – £3,000) ………………………….
7,000
Carrying value of the reporting unit …………… (500,000)
Impairment ………………………………………………. £ 80,000
*Recoverable amount of Old Master
TIME AND PURPOSE OF CONCEPTS FOR ANALYSIS
CA 12.1 (Time 15–20 minutes)
Purpose—to provide the student with an opportunity to determine which development costs are expensed
and which are capitalized. The student is required to discuss how the accounting for development costs
impacts a company’s income statement and statement of financial position. Finally, the student must
identify the criteria for determining “economic viability”.
CA 12.2 (Time 20–25 minutes)
Purpose—to provide the student with an opportunity to determine the proper classification of certain
CA 12.3 (Time 25–30 minutes)
Purpose—to present an opportunity for the student to discuss accounting for patents from a theoretical
CA 12.4 (Time 25–30 minutes)
Purpose—to provide the student with an opportunity to discuss the theoretical support for and practical
CA 12.5 (Time 20–25 minutes)
Purpose—to provide the student with an opportunity to examine the ethical issues related to expensing
research and development costs.
SOLUTIONS TO CONCEPTS FOR ANALYSIS
CA 12.1
(a) Research and Development Costs
Research and Development
Expense
Capitalized
Patent
Dogwood incurred legal and processing fees
to file and record a patent for the
technology ………………………………………………. €10,000
As indicated, Dogwood records as Research and Development Expense all Research and
Development costs incurred in the project prior to meeting the economic viability criteria (€57,000).
(b) By capitalizing the €10,000 legal fees and the €45,000 final development costs, Dogwood’s current
period income and intangible assets are higher. In future periods, Dogwood’s income and intangible
assets will decrease by the amount of amortization recorded on the capitalized costs (€55,000).
CA 12.2
Interest on mortgage bonds. An amount equal to the interest cost incurred in 2018 ($720,000) is a
cost which can be associated with the normal construction period and can be regarded as a normal
element of the cost of the physical assets of the shopping center because the construction period would
have ended at the end of the year if the tornado had not occurred. The decision to use debt capital to
In lieu of treating interest during construction as an element of the cost of the physical assets, it can be
argued that it represents an element of the general cost of bringing the business to the point of revenue
production and should therefore be treated as an organization expense. This view regards interest