Reference no: EM132808955

The statement of financial position of Jollibee Corporation as of December 31, 2019 reported the intangible assets, net as follows:

Patent A       P 1,680,000
Patent B       2,450,000
                     P 4,130,000

During the course of your audit, you noted the following:

a. Patent A was purchased for P 1,920,000 on January 1, 2018, at which date the remaining legal life was sixteen years. On January 1, 2020, Jollibee determined that the useful life of the patent was only eight years from the date of acquisition.

b. On May 1, 2020, Jollibee sold Patent B in an exchange for a P 5,000,000 non-interest bearing note due on May 1, 2023. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note at May 1, 2020 was 14%. The patent was purchased for P3,150,000 on September 1, 2016. On that date, the remaining legal life was fifteen years, which was also determined to be the useful life.

c. On January 3, 2020, in connection with the purchase of a trademark from Kamala Corporation, the parties entered into a noncompetition agreement and a consulting contract. Jollibee paid Kamala P8,000,000, of which three-quarters was for the trademark and one-quarter was for the Kamala's agreement not to compete for a five-year period in the line of business covered by the trademark to be indefinite. Under the consulting contract, Jollibee agreed to pay Kamala P500,000 annually on January 3 for five years. The first payment was made on January 3, 2020.

d. At December 31, 2020, Jollibee determined the recoverable amount of the intangible assets as follows:

Patent A P 1,350,000
Trademark 5,500,000
Noncompetition agreement 1,800,000

Requirements:

Problem 1. Gain on sale of Patent B

Problem 2. Total amortization to be recognized in 2020

Problem 3. Total impairment loss to be recognized in 2020

Problem 4. Intangible assets to be recognized in the statement of financial position as of December 31, 2020