On January 1, 2019, Tulip signed an agreement to operate as a franchise of Flower Service Inc. for an initial franchise fee of P850,000. Of this amount, P250,000 was paid when the agreement was signed and the balance was payable in four annual payments of P150,000 each, beginning January 1, 2020. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value of January 1, 2019 of the four annual payments discounted at 14% (the implicit rate for a loan of this type) is P437,000. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Tulip's revenue from the franchise for 2019 was P900,000. Tulip estimates the useful life of the franchise to be ten years. Tulip incurred P780,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 2019. Legal fees and other costs associated with the registration of the patent totaled P164,000. Tulip estimates that the useful life of the patent will be eight years. A trademark was purchased from Group Company for P400,000 on July 1, 2017. Expenditures for successful litigation in defense of the trademark totaling P102,000 were paid on July 1, 2019. Tulip estimates that the trademark's useful life will be twenty years from the date of acquisition. On expiration date, the trademark will no longer provide any benefits. How much would be the carrying value of the intangibles in the December 31, 2019 statement of financial position? a. P1,091,800 b. P1,188,860 c. P1,190,800 d. P1,337,500
On January 1, 2019, Tulip signed an agreement to operate as a franchise of Flower Service Inc. for an initial franchise fee of P850,000. Of this amount, P250,000 was paid when the agreement was signed and the balance was payable in four annual payments of P150,000 each, beginning January 1, 2020. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value of January 1, 2019 of the four annual payments discounted at 14% (the implicit rate for a loan of this type) is P437,000. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Tulip's revenue from the franchise for 2019 was P900,000. Tulip estimates the useful life of the franchise to be ten years. Tulip incurred P780,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 2019. Legal fees and other costs associated with the registration of the patent totaled P164,000. Tulip estimates that the useful life of the patent will be eight years. A trademark was purchased from Group Company for P400,000 on July 1, 2017. Expenditures for successful litigation in defense of the trademark totaling P102,000 were paid on July 1, 2019. Tulip estimates that the trademark's useful life will be twenty years from the date of acquisition. On expiration date, the trademark will no longer provide any benefits. How much would be the carrying value of the intangibles in the December 31, 2019 statement of financial position? a. P1,091,800 b. P1,188,860 c. P1,190,800 d. P1,337,500
Chapter18: Accounting Periods And Methods
Section: Chapter Questions
Problem 3RP
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Transcribed Image Text:On January 1, 2019, Tulip signed an agreement to operate as a franchise of
Flower Service Inc. for an initial franchise fee of P850,000. Of this amount, P250,000
was paid when the agreement was signed and the balance was payable in four annual
payments of P150,000 each, beginning January 1, 2020. The agreement provides that
the down payment is not refundable and no future services are required of the
franchisor. The present value of January 1, 2019 of the four annual payments
discounted at 14% (the implicit rate for a loan of this type) is P437,000. The
agreement also provides that 5% of the revenue from the franchise must be paid to
the franchisor annually. Tulip's revenue from the franchise for 2019 was P900,000.
Tulip estimates the useful life of the franchise to be ten years.
Tulip incurred P780,000 of experimental and development costs in its
laboratory to develop a patent which was granted on January 2, 2019. Legal fees and
other costs associated with the registration of the patent totaled P164,000. Tulip
estimates that the useful life of the patent will be eight years.
A trademark was purchased from Group Company for P400,000 on July
1, 2017. Expenditures for successful litigation in defense of the trademark totaling
P102,000 were paid on July 1, 2019. Tulip estimates that the trademark's useful life
will be twenty years from the date of acquisition. On expiration date, the trademark
will no longer provide any benefits. How much would be the carrying value of the
intangibles in the December 31, 2019 statement of financial position?
a. P1,091,800
b. P1,188,860
c. P1,190,800
d. P1,337,500
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