You noted the following items relative to the company's intangibles assets of Pete Corporation at December 31,
Question:
On January 2021, Pete signed an agreement to operate as franchisee of Clear Copy Service, Inc., for an initial franchise of P680,000. Of this amount, P200,000 was paid when the agreement was signed and the balance was payable in four annual payment of P120,000 each beginning on January 1, 2022. The agreement provides that the down payment is not refundable and no future services are required in the franchisor. The implicit rate for loan of this type is 14%. Discount factors of 14% for four years for ordinary annuity and annuity due are 2.9137 and 3.3216, respectively. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Pete's revenue from the franchise for 2022 was P8,000,000. Pete estimates the useful life of the franchise to be ten years.
Pete incurred P624,000 of experimental development costs in its laboratory to develop a patent which was granted on January 2, 2021. Legal fees and other costs associated with the registration of the patent totaled P131,200. Pete estimates that the useful life of the patent will be eight years.
A trademark was purchased from Jane Company for P220,000 on July 1, 2020. Expenditures for successful litigation in defense of the trademark totaling P80,000 were paid on July 1, 2022. Pete estimates that the trademark's useful life will be indefinite.
What are the carrying amounts of the intangible assets (franchise, patents and trademarks, respectively) on December 31, 2022?
On April 1, 2022, Vancouver Company purchased from Sunbucks Company (franchisor), a franchise to operate a 24-hours cafe at Eastwood for P3,125,000. In addition, the franchise contract stipulates that Vancouver shall pay Sunbucks Company 5% of its sales in excess of P5,000,000, payable at the end of the month following the end of every quarter. For the nine months ended December 31, 2022, Vancouver Company's sales amounted to P8,500,000. Vancouver estimates that the useful life of the franchise is 10 years. It is the company's policy to amortize to the nearest month.
How much is Vancouver Company's amortization expense and franchise fee expense for the year 2022?
Fundamentals of Financial Accounting
ISBN: 978-1259103292
4th Canadian edition
Authors: Fred Phillips, Robert Libby, Patricia Libby, Brandy Mackintosh