Question 1

Calculation of goodwill
Saje Corporation's pre-tax accounting income of $ 726,000 for the year 2020 included the following items:
 $\begin{array}{llcc}
  \text {Amortization of identifiable intangibles  } & \$140,000 \
 \text { Depreciation of building } &119,000\
 \text {  Loss from discontinued operations} &46,000\
 \text { Unusual, non-recurring gains } &157,000\
 \text { Profit-sharing payments to employees } &69,300\
\end{array}$
 Lush Industries Ltd. would like to purchase Saje Corporation. In trying to measure Saje's normalized earnings for 2020, Lush determines that the building's fair value is triple the book value and that its remaining economic life is double the life that Saje is using. Lush would continue the profit-sharing payments to employees, with the payments being based on income from continuing operations before amortization and depreciation.
Instructions
Calculate the 2020 normalized earnings amount of Saje Corporation that Lush would use to calculate goodwill.

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The answer of Calculation of goodwill
Saje Corporation's pre-tax accounting income...

Question 2

Disclosures required for internally generated intangible assets
Briefly outline what information is required to be disclosed for each class of intangible asset. What is the goal of these disclosures for publicly accountable entities?

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Briefly...

Question 3

Revaluation model limitations with intangible assets
Why is the revaluation model not widely used for measuring intangible assets after initial recognition?

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Why...

Question 4

Accounting for unidentifiable intangible assets
Explain how an entity that acquires control over one or more businesses accounts for intangible assets when they are not identifiable.

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Explain how an...

Question 5

Acquisition of tangible and intangible assets
Abe Manufacturing Corp. decided to expand further by purchasing the net assets of ERB Manufacturing Corp. ERB's statement of financial position at December 31, 2020 follows.
 An appraisal, agreed to by both parties, indicated that the fair value of the inventory was $ 320,000 and the fair value of the plant assets was $ 1,225,000. The fair value of the receivables and payables is equal to the amount reported on the balance sheet. The agreed purchase price was $ 3 million, and this amount was paid in cash to the owners of ERB
Instructions
Calculate the amount of goodwill (if any) implied in the purchase price of $ 3 million. Show calculations.

Accepted Answer

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Abe...

Question 6

Determining impairment loss under ASPE
On September 1, 2020, Humble Corporation acquired Roots Media for a cash payment of $ 859,100. At the time of purchase, Roots' statement of financial position showed assets of $ 899,600, liabilities of $ 462,300, and owner's equity of $ 437,300. The fair value of Roots' assets is estimated to be $ 1,163,900.
Instructions
a) Assuming that Humble Corporation is a private entity, explain how goodwill will be tested for impairment.
b) If the unit's carrying amount (including goodwill) is $ 3,617,400 and its fair value is $ 3,553,200, what is the impairment loss, if any, under ASPE?

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On September 1,...

Question 7

Intangible asset impairment
Picot Collective purchases a patent on January 1, 2015 for $ 118,800. At the time of purchase, Picot estimated that the patent had a useful life of 12 years. Picot used the straight-line method to amortize the patent, and annual impairment tests showed no impairment of the patent's value. On January 1, 2020, Picot sold the patent for $ 84,600.
Instructions
Prepare the journal entry to record the sale of the patent.

Accepted Answer

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Picot Collective purchases a...

Question 8

Goodwill measurement and recording
Snoopy Inc. is considering purchasing the net assets of Woodstock Corporation. Following is the statement of financial position of Woodstock as at December 31, 2020.
 $\begin{array}{c}
\text {WOODSTOCK CORPORATION}\
\text {Statement of Financial Position}\
\text {As at December 31, 2020}\
\begin{array}{|l|r|}
\hline\text { Current assets } & \$ 231,400 \
\hline \text { Buildings and equipment } & 753,000 \
\hline \text { Accumulated amortization } & (113,000) \
\hline \text { Land } & 173,000 \
\hline \text { Total assets } & \$ 1,044,400 \
\hline \text { Current liabilities } & \$ 187,000 \
\hline \text { Commonshares } & 577,000 \
\hline \text { Retained earnings } & 280,400 \
\hline \text { Total liabilities and equity } & \$ 1,044,400\
\hline
\end{array}
\end{array}$ Following are the fair values of Woodstock's net assets as at December 31, 2020.
 $$\begin{array} { | l | r | } 
\hline \text { Current assets } & \mathbf { \$ 2 2 5 , 5 0 0 } \
\hline \text { Buildings and equipment } & \mathbf { 4 8 2 , 6 0 0 } \
\hline \text { Land } & \mathbf { 3 1 3 , 5 0 0 } \
\hline \text { Current liabilities } & { ( 166,300 ) } \
\hline &\$ \mathbf { 8 8 5 , 3 0 0 } \
\hline
\end{array}$$ Instructions
Calculate the value of goodwill that would be recorded by Snoopy if it offered $ 2,060,300 for the net assets of Woodstock Corporation.

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Snoopy Inc. is considering...

Question 9

Negative goodwill
What is negative goodwill and why does it occur?

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What is negative goodwill and why...

Question 10

Identifying R&D stage activities
Provide some examples of activities in each of the research and development phases. If there is uncertainty about which phase a particular activity relates to when internally creating an intangible asset, which classification should it be assigned?

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Provide some examples of...

Question 11

Indefinite versus infinite useful life
Is there a difference between assets with an indefinite useful life versus an infinite useful life?

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Is there...

Question 12

Criteria for capitalization of development costs
List the criteria that must be met before development costs of a project may be capitalized.

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List the...

Question 13

Calculation of goodwill
Great Corporation is interested in purchasing Big World Company Ltd. The total of Big World's net income amounts over the past five years is $ 745,000. During one of those years, Big World reported a gain on discontinued operations of $ 93,000. The fair value of Big World's net identifiable assets is $ 684,000. A normal rate of return is 14%, and Great Corporation wants to capitalize excess earnings at 19%.
Instructions
Calculate the estimated value of goodwill.

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Great Corporation is interested in...

Question 14

Capitalization versus expensing intangible-related costs
Identify whether the following costs would be expensed (E) or capitalized (C):
___ Lawyer fees related to the successful defence of a patent
___ Routine website maintenance
___ Costs incurred to register a company's name and trademark
___ Interest or borrowing costs related to an internally generated intangible
___ Lawyer fees related to the unsuccessful defence of a patent

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Identify whether the...

Question 15

Goodwill impairment
On September 1, 2020, Piper Corporation acquired Darcy Enterprises for a cash payment of $ 850,000. At the time of purchase, Darcy's statement of financial position showed assets of $ 890,000, liabilities of $ 450,000, and owner's equity of $ 440,000. The fair value of Darcy's assets is estimated to be $ 1,150,000. Assume that Piper is a public company and the goodwill was allocated entirely to one cash-generating unit (CGU). Two years later, the CGU's carrying amount is $ 3,450,000; its value in use is $ 3,380,000; the fair value less costs to sell is $ 2,980,000.
Instructions
Determine if goodwill is impaired, and calculate the goodwill impairment loss.

Accepted Answer

The answer of  Goodwill impairment
On September 1, 2020, Piper...

Question 16

Technology-based intangible assets
Provide an example of a technology-based intangible asset. Over what period should these types of assets be amortized?

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Provide an example of a...

Question 17

Alternative treatments of goodwill after recognition
Once goodwill has been recognized in the accounts, there has been much disagreement over how it should be treated in subsequent periods. Discuss the alternative treatment approaches.

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Once...

Question 18

Definitions
Provide clear, concise answers for the following:
1. What are intangible assets?
2. How are research costs accounted for?
3. How are development costs accounted for?
4. What are the two models that are used to measure intangible assets after initial acquisition?
5. What are the factors that should be considered when determining the useful life of limited-life intangible assets?
6. What are the major categories of intangible assets?
7. What are the two models that are used to account for the impairment of intangible assets?

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The answer of Definitions
Provide clear, concise answers for the following:
1....

Question 19

Reporting a patent purchase
Comox Corporation has a December 31 fiscal year end. Comox purchased a patent from Courtney Inc. for $ 400,000 on January 1, 2017. The patent expires on January 1, 2025. Comox has been amortizing it over its legal life. During 2020, Comox determined that the patent's economic benefits would not last longer than six years from the date of acquisition.
Instructions
Determine the amount that will be reported on
a) Comox's December 31, 2019 and 2020, statements of financial position.
b) Comox's 2020 income statement. Be specific about the account name and the account.

Accepted Answer

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Comox Corporation has a...

Question 20

Capitalization of R&D costs
Carmanah Industries Ltd. Is a company in the high-technology industry. Carmanah has been working on developing a new solar panel technology. The technology meets all of the six criteria required in order to capitalize development costs. During 2020, Carmanah incurred the following costs related to research and development:
 $$\begin{array} { l l } 
\text { Rent of facility } & \mathbf { \$ 2 5 0 , 0 0 0 } \
\text { Salaries of recearch staff } & \mathbf { 290 , 0 0 0 } \
\text { Legal costs to obtain new patent for technology } & \mathbf { 4 0 , 0 0 0 } \
\text { Legal costs of defending new patent in court } & 36,000 \
\text { Materials consumed in manufacture of prototypes } & 13,100 \
\text { Consulting fees paid for general research } & \mathbf { 4 5 , 2 0 0 } \
\text { Indirect costs related to recearch and development } & 9,700
\end{array}$$ Instructions
Calculate the amount that Carmanah would be allowed to capitalize as an intangible asset for 2020, assuming that Carmanah follows IFRS.

Accepted Answer

The answer of Capitalization of R&D costs
Carmanah Industries Ltd. Is...

Quiz 12: Intangible Assets and Goodwill

Disclosures required for internally generated intangible assets Briefly outline what information is required to be disclosed for each class of intangible asset. What is the goal of these disclosures for publicly accountable entities?

Revaluation model limitations with intangible assets Why is the revaluation model not widely used for measuring intangible assets after initial recognition?

Accounting for unidentifiable intangible assets Explain how an entity that acquires control over one or more businesses accounts for intangible assets when they are not identifiable.

Negative goodwill What is negative goodwill and why does it occur?

Identifying R&D stage activities Provide some examples of activities in each of the research and development phases. If there is uncertainty about which phase a particular activity relates to when internally creating an intangible asset, which classification should it be assigned?

Indefinite versus infinite useful life Is there a difference between assets with an indefinite useful life versus an infinite useful life?

Criteria for capitalization of development costs List the criteria that must be met before development costs of a project may be capitalized.

Technology-based intangible assets Provide an example of a technology-based intangible asset. Over what period should these types of assets be amortized?

Alternative treatments of goodwill after recognition Once goodwill has been recognized in the accounts, there has been much disagreement over how it should be treated in subsequent periods. Discuss the alternative treatment approaches.