NAME: Date:

Subject: AUDITING Section: Score:

A. On January 1, 2015, Fiji Company spent P480,000 to apply for and obtain a patent on newly
developed product. The patent had an estimated useful life of 10 years. At the beginning of 2019, the
company spent P144,000 in successfully prosecuting an attempted patent infringement. At the
beginning of 2020, the company purchased for P280,000 a patent that was expected to prolong the life
of its original patent by 5 years. On July 1, 2023 a competitor obtained rights to a patent that made
the company’s patent obsolete.

Based on the above and the result of your audit, determine the following:
1. Carrying amount of patent as of December 2019
2. Amortization of patent in 2020
3. Carrying amount of patents as of December 31, 2022
4. Loss on patent obsolescence

B. In connection with your audit of the Athens Corporation’s FS for the year 2023, you noted the
following items relative to the company’s intangible assets.
a. A patent was purchased from Cannes Company for P4M on January 2, 2022. Athens estimated
that the remaining useful life of the patent to be 10 years. The patent was carries in Cannes’
Accounting records at a carrying value of P4M when Cannes sold it to Athens.
b. During 2023, a franchise was purchased from Maldives Company for P960,000. An addition,
5% of the revenue from the franchise must be paid to Maldives. Revenue from the franchise for
2023 was P5M. Athens estimates the useful life of the franchise to be 10 years and takes full
year’s amortization in the year of purchase.
c. Athens incurred research and development costs of P866,000 in 2023. Athens estimate that
these costs will be recouped by December 31, 2026.
d. On January 1, 2023, Athens, because of the recent events in the industry, estimates that the
remaining life of the patent purchased on January 2, 2022 is only 5 years from January 1,
2023.

Based on the above and the result of your audit, determine the following:
1. Amortization of patent for 2023
2. Carrying amount of patent as of December 31, 2023
3. Carrying amount of intangible assets as of December 31, 2023
4. Total Amount that should be charged against income in 2023

C. In connection with your audit of the Marrakech Corp., you noted the following transactions during
2023:
Jan 2 Paid legal fees of P450,000 and stock certificate costs of P249,000 to complete organization
of the corporation
Jan 15 Hire a clown to stand in front of the corporate office for 2 weeks and handed out pamphlets
and candy to create goodwill for the new enterprise. Clown cost, P30,000; pamphlets and
candy, P15,000.
Apr 1 Patented a newly developed process with costs as follows:
Legal fees to obtain the patent P 1,287,000
Patent application and licensing fees 190,000
Total P 1,477,500
It is estimated that in 6 years other companies will have developed improved process,
making the Marrakech process obsolete.
May 1 Acquired both a license to use a special type of container and distinctive trademark to be
printed on the container in exchange for 18,000 shares of Marrakech’s no-par common
stock selling for P50 per share. The license is worth twice as much as the trademark, both
of which may be used for 6 years.
Jul 1 Constructed a shed for P3,930,000 to house prototypes of experimental models to be
developed in future research projects.
Dec 31 Incurred salaries for an engineer and chemist involved in product development totaling
P750,000 in 2023.
Based on the above and the result of your audit, determine the following:
1. Cost of patent
2. Cost of licenses
3. Cost of trade mark
4. Total amount resulting from the foregoing transactions that should that should be expensed
when incurred
5. Carrying amount of intangible Assets as of Dec 31, 2023
D. On January 1, 2022, Geneva Company signs a 10-year noncancelable lease agreement to lease a
storage building from St. Lucia Company. The following information pertains to this lease agreement:
a. The agreement requires equal rental payments of P720,000 beginning on January 1, 2022.
b. The fair value of the building on January 1, 2022, is P4,400,000.
c. The building has an estimated economic life of 12 years, with an unguaranteed residual value
of P100,000. Geneva depreciates similar buildings on the straight-line method.
d. Geneva’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by
Geneva.
e. The yearly rental payment includes P24,705.10 of executory costs related to taxes on the
property.
The following present value factors are for 10 periods at 12% annual interest rate:
Present value of an annuity due of 1 6.32825
Present value of an ordinary annuity of 1 5.65022
Present value of 1 0.32197
1. The minimum annual lease payment is:
2. The present value of minimum lease payments is:
3. The interest expense at December 31, 2022 is:
4. The depreciation expense at December 31, 2022 is:
5. The Book Value of Leased Building at December 31, 2023 is:

E. During your audit of the records of The Palm Corporation for the year ended December 31, 2023, the
following facts were disclosed:
Raw materials inventory, 1/1/2023 P
720,200
Raw materials purchases 5,232,800
Direct labor 4,900,000
Manufacturing overhead applied (150% of direct labor) 7,350,000
Finished goods inventory, 1/1/2023 1,240,000
Selling expenses 8,112,800
Administrative expenses 7,377,200

Your examination disclosed the following additional information:

a. Purchases of raw materials
Month Units Unit Price Amount
January – February 55,000 P17.76 P 976,800
March – April 45,000 20.00 900,000
May – June 25,000 19.60 490,000
July – August 35,000 20.00 700,000
September – October 45,000 20.40 918,000
November – December 60,000 20.80 1,248,000
265,000 P5,232,800

b. Data with respect to quantities are as follows:

Units
Explanation 1/1/23 12/31/23
Raw materials 35,000 ?
Work in process (80% completed) - 25,000
Finished goods 15,000 40,000
Sales, 200,000 units

c. Raw materials are issued at the beginning of the manufacturing process. During the
year, no returns, spoilage, or wastage occurred. Each unit of finished goods contains
one unit of raw materials
d. Inventories are stated at cost as follows:
i. Raw materials – according to the FIFO method
ii. Direct labor – at an average rate determined by correlating total direct labor cost
with effective production during the period
iii. Manufacturing overhead – at an applied rate of 150% of direct labor cost

Based on the above and the result of your audit, answer the following:
1. The raw materials inventory as of December 31, 2023 is
2. The work in process inventory as of December 31, 2023 is
3. The finished goods inventory as of December 31, 2023 is
4. The cost of goods sold for the year ended December 31, 2023 is