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PRACTICAL ACCOUNTING PROBLEMS 1

SELF-TEST

1. In packages of the products, Nicko Company included coupons that may be presented at retail
stores to obtain discounts on other Nicko products. Retailers were reimbursed for the face
amount of coupons redeemed plus 10% of that amount for handling costs. The entity honored
requests for coupon redemption by retailers up to three months after the consumer expiration
date. The entity estimated that 70% of all coupons issued would ultimately be redeemed. The
consumer expiration date is December 31, 2013. The total face amount of coupons issued was
P600,000 and the total payments to retailers during 2013 amounted to P220,000. What amount
should be reported as liability for unredeemed coupons on December 31, 2013?
a. 308,000
b. 200,000
c. 242,000
d. 0
2. On April 1, 2013, Cindy Company began offering a new product for sale under a one-year
warranty. Of the 50,000 units in inventory on April 1, 2013, 30,000 had been sold by June 30,
2013. Based on experience with similar products, the entity estimated that the average
warranty cost per unit sold would be P80. Actual warranty costs incurred from April 1 through
June 30, 2013 amounted to P700,000. On June, 2013, what is the estimated liability?
a. 3,300,000
b. 1,600,000
c. 1,700,000
d. 900,000
3. Israel Company operates a retail grocery store that is required by law to collect refundable
deposit of P5 on soda cans. Information for the current year is as follows:
Liability for refundable deposit – January 1 150,000
Cans of soda sold 100,000
Soda cans returned 110,000

On February 1, the entity subleased space and received P25,000 deposits to be applied against
rent at the expiration of the lease in 5 years. In the December 31 statement of financial
position, what amount should be reported as current liability for deposit?
a. 125,000
b. 140,000
c. 100,000
d. 25,000
4. Kiara Company sells office equipment service contracts agreeing to service equipment for a two-
year period. Cash receipts from contracts are credited to unearned service contract revenue
and service contract costs are charged to service contract expense as incurred. Revenue from
service contracts is recognized as earned over the lives of the contracts. Additional information
for the year ended December 31,2013 is as follows:
Unearned service contract revenue January 1 1,200,000
Cash receipts from service contracts sold 2,000,000
Service contract revenue recognized 1,700,000
Service contract expense 1,000,000

What amount should be reported as unearned service contract revenue on December 31, 2013?
a. 1,500,000
b. 2,200,000
c. 1,000,000
d. 3,200,000
5. Bernadette Company requires advance payments with special orders for machinery constructed
to customer specifications. These advances are nonrefundable. Information for the current
year is as follows:
Advances from customers – January 1 2,400,000
Advances received with orders 3,700,000
Advances applied to orders shipped 3,200,000
Advances applicable to orders cancelled 600,000

What amount should be reported as current liability for advances from customers at year-end?
a. 2,900,000
b. 2,300,000
c. 500,000
d. 0
6. Reysie Company offers three payment plans on its twelve-month contracts. Information on the
three plans and the number of children enrolled in each plan for the September 1,2013 to
August 31,2014 contract year follows:

Initial payment per child Monthly fee per child Number of children
Plan A 50,000 - 15
Plan B 20,000 3,000 12
Plan C - 5,000 9

The entity received P990,000 of initial payments on September 1, 2013 and P324,000 of
monthly fees during the period September 1, 2013 to December 31, 2013. On December 31,
2013, what amount should be reported as deferred revenue?
a. 330,000
b. 438,000
c. 660,000
d. 990,000
7. After three profitable years, Andrea Company decided to offer a bonus to the branch manager
of 25% of income over P2,000,000 earned by the branch. The income for the branch was
P3,500,000 before tax and before bonus for the current year. The bonus is computed on income
in excess of P2,000,000 after deducting the bonus but before deducting tax. What is the bonus
for the current year?
a. 700,000
b. 400,000
c. 300,000
d. 375,000
8. Ervielyn Company a division of National Realty Company maintains escrow accounts and pays
real estate taxes for National’s mortgage customers. Escrow funds are kept in interest-bearing
accounts. Interest, less a 10% service fee, is credited to the mortgagee’s account and used to
reduce future escrow payments.
Escrow accounts liability – January 1 700,000
Escrow payments received during the year 1,580,000
Real estate taxes paid during the year 1,720,000
Interest on escrow funds 50,000

What is the escrow accounts liability on December 31?


a. 510,000
b. 515,000
c. 605,000
d. 610,000
9. During 2013, Mark Company became involved in a tax dispute with the BIR. On December 31,
2013 the tax advisor believed that an unfavorable outcome was probable. A reasonable
estimate of additional tax was P500,000 but could be as much as P750,000. After the 2013
financial statements were issued, the entity received and accepted a BIR settlement offer of
P650,000. What amount of accrued liability should be reported on December 31,2013?
a. 500,000
b. 750,000
c. 650,000
d. 625,000
10. During January 2013, Dave Company won a litigation award for P1,500,000 that was tripled to
P4,500,000 to include punitive damages. The defendant, who is financially stable, has appealed
only the P3,000,000 punitive damages. The entity was awarded P5,000,000 in an unreleased
suit it filed, which is being appealed by the defendant. Counsel is unable to estimate the
outcome of the appeal. In the 2013 income statement, what amount of pretax gain should be
reported?
a. 1,500,000
b. 4,500,000
c. 5,000,000
d. 3,000,000
11. During 2013, Minette Company is the defendant in a patent infringement lawsuit. The entity’s
lawyers believed there is a 30% chance that the court will dismiss the case and the entity will
incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the
lawyers believed that there is a 20% chance that the entity will be required to pay damages of
P200,000 and an 80% chance that the entity will be required to pay damages of P100,000.
Other outcomes are unlikely. The court is expected to rule in late December 2014. There is no
indication that the claimant will settle out of court. A 7% risk adjustment factor to the
probability-weighted expected cash flows is considered appropriate to reflect the uncertainties
in the cash flow estimates. An appropriate discount rate is 5% per year. The present value of 1
at 5% for one period is 0.95. What is the measurement of the provision for lawsuit?
a. 85,386
b. 84,000
c. 89,880
d. 0
12. On January 1, 2013, Jeremiah Company borrowed P3,600,000 from a major customer evidenced
by a noninterest-bearing note due in three years. The entity agreed to supply the customer
inventory needs for the loan period at lower than market price. At the 12% imputed interest
rate for this type of loan, the present value of the note is P2,550,000 on January 1, 2013. What
amount of interest expense should be reported in 2013?
a. 432,000
b. 350,000
c. 306,000
d. 0
13. On December 31, 2013, Nenani Company had a P1,500,000 note payable outstanding due July
31, 2014. The entity planned to refinance the note by issuing long-term bonds. Because the
entity temporarily had excess cash, it prepaid P500,000 of the note on January 15, 2014. In
February 2014, the entity completed a P3,000,000 bond offering. On March 31, 2013, the entity
issued the 2013 financial statements. What amount of the note payable should be included in
current liabilities on December 31, 2013?
a. 1,500,000
b. 1,000,000
c. 500,000
d. 0
14. During 2013, Raquel Company experienced financial difficulties and is likely to default on a
P5,000,000, 15% three-year note dated January 1, 2011, payable to Global Bank. On December
31, 2013, the bank agreed to settle the note and unpaid interest of P750, 000 for P4,000,000
cash payable on January 31,2014. What amount should be reported as gain from
extinguishment of debt in the 2013 income statement?
a. 1,750,000
b. 1,000,000
c. 2,250,000
d. 0
15. On November 1, 2013, Timothy Company issued P8,000,000 ten-year, 8% term bonds dated
October 1, 2013. The bonds were sold to yield 10% with total of P7,000,000 plus accrued
interest. Interest is paid every April 1 and October 1. What amount should be reported as
accrued interest payable on December 31, 2013?
a. 200,000
b. 160,000
c. 140,000
d. 175,000
16. On January 1, 2013, Giselle Company issued 10% bonds in the face amount of P1,000,000 that
mature on January 1, 2023. The bonds were issued for P886,000 to yield 12%, resulting in bond
discount of P114,000. The interest method is used in amortizing bond discount. Interest is
payable on June 30 and December 31. What amount should be reported as bond interest
expense for 2013?
a. 106,510
b. 100,000
c. 53,160
d. 50,000
17. Ezra Company had outstanding a 7% 10-year P5,000,000 face value bond. The bond was
originally sold to yield 6% annual interest. The entity used the effective interest method to
amortize bond premium. Interest is payable annually every December 31. On January 1, 2013,
the carrying amount of the bond payable was P5,250,000. What amount of unamortized
premium on bond payable should be reported on December 31, 2013?
a. 225,000
b. 172,500
c. 215,000
d. 52,500
18. On January 1, 2013, Carmina Company received P5,385,000 for a P5,000,000 face amount, 12%
bond, a price that yields 10%. The bond pays interest semiannually. The entity elected the fair
value option for valuing financial liabilities. On December 31, 2013, the fair value of the bond is
determined to be P5,125,000. The entity recognized interest expense of P600,000 in the 2013
income statement. What is the gain or loss that should be recognized in 2013 to report this
bond at fair value?
a. 260,000 gain
b. 260,000 loss
c. 600,000 loss
d. 340,000 loss
19. On January 1, 2013, Nicole Company issued P5,000,000, 12% bonus at 108 due on December 31,
2017. Each P1,000 bond was issued with 30 detachable share warrants, each of which entitled
the bondholder to purchase one P25 par value share for P50. The quoted market value of each
warrant was P5. The market value of the bonds ex-warrants at the time of issuance is 96. What
amount of the proceeds from the bond issue should be recognized as an increase in
shareholders’ equity?
a. 600,000
b. 300,000
c. 250,000
d. 400,000
20. Brian Company had outstanding share capital of P50,000,000 and a 12% convertible bond
payable of P10,000,000. Interest payment dates are June 30 and December 31. The conversion
clause entitles the bondholders to receive 40 shares of P20 par value in exchange for each
P1,000 bond. At year-end, the holders of P5,000,000 face value bonds exercised the conversion
privilege. The market price on that date was P1,100 per bond and the market price of the share
was P30. The unamortized bond discount at that date of conversion was P500,000. The share
premium from conversion privilege has a balance of P2,000,000. What amount of share
premium should be recognized by reason of the conversion of bonds payable?
a. 2,000,000
b. 2,750,000
c. 3,000,000
d. 1,750,000
21. On July 1, 2013, Paulo Company leased office space for 5 years at P150,000 a month. On that
date, the entity paid the lessor rent security deposit P350,000 rent for first month P150,000,
rent for last month P150,000, and nonrefundable reimbursement to lessor for modifications of
leased premises P900,000. The entity made timely rental payments from August 1 through
December 1, 2013. What portion of the payments to the lessor should be deferred on
December 31, 2013?
a. 1,400,000
b. 1,310,000
c. 1,250,000
d. 500,000
22. John Company leased office premises for a five-year term beginning January 1,2013. Under the
terms of the operating lease, rent for the first year is P800,000 and rent for years 2 through 5 is
P1,250,000 per annum. As an inducement to enter the lease, the entity granted the lessee the
first six months rent-free. What amount should be reported as rental income for 2013?
a. 1,200,000
b. 1,160,000
c. 1,080,000
d. 800,000
23. Jerafin Company purchased a machine for P4,800,000 on January 1, 2013 and leased it the same
day. The machine has a 12-year life with no residual value. The lease is for a three- year period
expiring January 1, 2016, at an annual rental of P850,000. The lessee paid P300,000 to the
lessor as a lease bonus to obtain the three-year lease. The lessor incurred insurance expense of
P50,000 during 2013. What is the operating profit on the leased asset for 2013?
a. 500,000
b. 400,000
c. 950,000
d. 900,000
24. Joseph Company leased equipment for the entire nine-year useful life, agreeing to pay
P1,000,000 at the start of the lease term on January 1,2013 and P1,000,000 annually on each
January 1 for the next eight years. The present value on January 1, 2013 of the nine lease
payments over the lease term using the rate implicit in the lease which the lessor knows to be
10% was P6,330,000. The January 1, 2013 present value of the lease payments using the
incremental borrowing rate of 12% was P5,970,000. The entity made a timely second lease
payment. What amount should be reported as finance lease liability on December 31, 2014?
a. 5,330,000
b. 4,863,000
c. 4,970,000
d. 4,467,000
25. On January 1, 2013, Jenny Company signed an eight-year noncancelable lease for a new
machine, requiring P150,000 annual payments at the beginning of each year. The machine has a
useful life of 12 years with no residual value. Title passes to the lessee at the lease expiration
date. The entity used straight-line depreciation for all of the plant assets. Aggregate lease
payments have a present value on January 1, 2013 of P1,080,000 based on an appropriate rate
of interest. What amount should be recorded as depreciation expense of the leased machine
for 2013?
a. 150,000
b. 135,000
c. 90,000
d. 0
26. Meliza Company leased equipment to an unrelated party on July 1, 2013 for an eight-year
period expiring June 30, 2021. Equal payments under the lease are P600,000 and are due on
July 1 of each year. The first payment was made on July 1, 2013. The implicit rate of interest
contemplated is 10%. The cash selling price of the equipment is P3,500,000 and the carrying
amount is P2,800,000. The lease is appropriately recorded as a sales type lease. What amount
of profit on the sale and interest revenue should be recorded, respectively, for the year ended
December 31, 2013?
a. 350,000 and 350,000
b. 350,000 and 175,000
c. 700,000 and 290,000
d. 700,000 and 145,000
27. Kinglee Company leases computer equipment to customers under a direct financing lease. The
equipment has no residual value at the end of the lease and the lease does not contain bargain
purchase option. The entity wishes to earn 8% interest on a 5-year lease of equipment with a
cost of P3,234,000. The present value of an annuity due of 1 at 8% for 5 years is 4.312. At the
beginning of the current year, the entity leased the equipment to another entity. What is the
total interest revenue to be earned over the lease term?
a. 1,293,600
b. 1,394,500
c. 516,000
d. 750,000
28. Sarah Company provided the following pension plan information for the current year:
Projected benefit obligation – January 1 3,500,000
Accumulated benefit obligation – January 1 2,800,000
Pension benefits paid during the year 250,000
Past service cost during the year 500,000
Projected benefit obligation – December 31 5,000,000
Accumulated benefit obligation – December 31 3,900,000
Discount or settlement rate 10%

What is the current service cost for the year?


a. 1,400,000
b. 1,070,000
c. 900,000
d. 570,000
29. Andrei Company provided the following information in relation to the pension plan for the
current year:
Fair value of plan assets – January 1 8,750,000
Market-related value of the pension fund (5-year weighted average) 7,150,000
Pension benefits paid during the year 600,000
Contribution made to the fund during the year 700,000
Actual return on plan assets 950,000

What is the fair value of plan assets on December 31?


a. 8,200,000
b. 9,800,000
c. 7,250,000
d. 8,850,000
30. On January 1,2013, Wesley Company reported fair value of plan assets P8,000,000 unamortized
past service cost P1,500,000 and projected benefit obligation P9,000,000 prior to the adoption
of PAS 19R. The entity reported current service cost P1,500,000, past service cost P500,000,
contribution to the plan P2,000,000, benefits paid to employees P1,000,000 and actual return
on plan assets P1,100,000 during the current year. The remaining average vesting period for the
employees covered by the past service cost is 5 years. The discount or settlement rate is 10%.
What is defined benefit cost for 2013?
a. 2,100,000
b. 1,800,000
c. 2,400,000
d. 2,000,000
31. Harvey Company has an employee benefit plan for compensated absences that gives employees
10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over
indefinitely. Employees can elect to receive payment in lieu of vacation days. However, no
payment is given for sick days not taken. On December 31, 2013, the unadjusted balance of
liability for compensated absences was P2,100,000. The entity estimated that there were 1,500
vacation days and 750 sick days available on December 31, 2013. The employees earn an
average of P1,000 per day. On December 31, 2013 what amount of liability for compensated
absences should be reported?
a. 3,600,000
b. 2,250,000
c. 2,100,000
d. 1,500,000
32. Meredith Company is committed to close a factory in 10 months and shall terminate the
employment of all the remaining employees of the factory. Under the termination plan, an
employee leaving before closure of factory shall receive on termination date a cash payment of
P20,000. However, an employee that renders service until closure of the factory shall receive
P60,000. There are 120 employees at the factory. The entity expects 20 employees to leave
before closure and 100 employees to render service until closure. What amount should be
recognized as termination benefit?
a. 2,400,000
b. 6,400,000
c. 2,000,000
d. 4,000,000
33. Maverick Company has established a defined benefit plan for its employees. Annual payments
under the plan are equal to highest lifetime salary multiplied by 2% multiplied by the number of
years with the entity. On December 31, 2013, an employee had worked with the entity for 15
years. The current annual salary of the employee is P600,000. The employee is expected to
retire in 10 years and the increase in salary is expected to be 4% per year. The employee is
expected to live 8 years after retirement and shall receive first annual pension payment one
year after retirement. The discount rate is 10%. The future value of 1 at 4% for 10 periods is
1.48, the PV of an ordinary annuity of 1 at 10% for 8 periods is 5.335, and the PV of 1 at 10% for
10 periods is 0.386. What is the projected benefit obligation on December 31, 2013?
a. 266,400
b. 548,600
c. 180,000
d. 370,675
34. Jennifer Company reported that in the first year of operations the pretax financial income was
P6,000,000. In addition, the following differences existed:
Tax Return Accounting Record

Uncollectible accounts expense 200,000 250,000


Depreciation expense 800,000 500,000
Tax exempt interest revenue -- 150,000
The current year tax rate is 30% and the enacted rate for future year is 40%. What amount
should be reported as deferred tax expense in the income statement for the year?
a. 160,000
b. 140,000
c. 120,000
d. 100,000

35. Byron Company issued 10,000 shares with P100 par to a lawyer as compensation for 1,000
hours of legal services performed. The lawyer usually bills P1,600 per hour for legal services.
On the date of issuance, the share was trading on a public exchange at P140. By what amount
should the share premium account increase as a result of the transaction?
a. 600,000
b. 400,000
c. 300,000
d. 0
36. On January 1, 2013, Sharmaine Company had 125,000 shares issued 25,000 shares of which
were held as treasury. During the current year, transactions were as follows:
January 1 through October 31 – 13,000 treasury shares were distributed to officers as part of
share compensation plan.
November 1 – A 3 for 1 share split took effect.
December 1 – The entity purchased 5,000 of its own shares to discourage an unfriendly
takeover. These shares were not retired.

On December 31, 2013, how many shares were outstanding?


a. 375,000
b. 360,000
c. 334,000
d. 324,000
37. On January 1, 2013, Jayrod Company granted share options to certain key employees as
additional compensation. The options were for 100,000 ordinary shares of P10 par value at an
option price of P15 per share. Market price of this share option on January 1, 2013 is
P8. The options were exercisable beginning January 1, 2013 and expire on December 31, 2014.
On April 1, 2013, when the share was trading at P21, all share options were exercised. What
amount of compensation expense should be reported in 2013 in connection with the options?
a. 800,000
b. 500,000
c. 200,000
d. 125,000
38. Beverly Company granted 30,000 share appreciation rights that enabled key employees to
receive cash equal to the difference between P50 and the market price of the share on the date
each right is exercised. The service period is 2013 through 2015, and the rights are exercisable
in 2016. The market price of the share was P60 and P80 on December 31, 2013 and 2014
respectively. What amount should be reported as the liability under the share appreciation
rights on December 31, 2014?
a. 600,000
b. 500,000
c. 100,000
d. 450,000
39. Jane Company reported shareholders’ equity on December 31,2013 which consisted of the
following:
Share Capital, P30 par, 100,000 shares issued and outstanding 3,000,000
Share Premium 1,500,000
Retained earnings (deficit) (2,100,00)

On January 2, 2014, the entity put into effect a quasi- reorganization by reducing the par value
of the share to P5 and eliminating the deficit against share premium. Immediately after quasi-
reorganization, what amount should be reported as share premium?
a. 4,000,000
b. 1,500,000
c. 1,900,000
d. 400,000
40. Monica Company reported outstanding share capital on December31, 2013 consisting of 30,000.
5% P100 par value cumulative and fully participating preference shares, and 200,000 P10 par
value ordinary shares. Preference dividends were in arrears for 2012 and 2013. On December
31, 2013, the entity declared a dividend of P3,000,000. What was the amount of dividend
payable to ordinary shareholders?
a. 1,860,000
b. 1,140,000
c. 1,800,000
d. 1,200,000
41. Alex Company had the following capital structure during 2012 and 2013:
Preference share capital, P10 par, 4% cumulative, 250,000 shares 2,500,000
Ordinary share capital, P50 par, 200,000 shares 10,000,000

The entity reported net income of P5,000,000 for the year ended December 31, 2013. The
entity paid no preference dividends during 2012 and paid P160,000 in preference dividends
during 2013. What amount should be reported as basic earnings per share?
a. 24.20
b. 24.50
c. 24.00
d. 25.00
42. Joyce, a consultant, keeps accounting records on a cash basis. During 2013, the consultant
collected P2,000,000 in fees from clients. On December 31, 2012, the consultant had accounts
receivable of P400,000. On December 31, 2013, the consultant had accounts receivable of
P600,000 and unearned fees of P50,000. What was the service revenue for 2013 under accrual
basis?
a. 1,750,000
b. 1,800,000
c. 2,150,000
d. 2,250,000
43. Ganer Company paid salaried employees biweekly. Advances made to employees are paid back
by payroll deductions. The entity provided the following information about salaries:
December 31, 2012 December 31, 2013
Employee advances 24,000 36,000
Accrued salaries payable 40,000 ?
Salaries expense during the year 420,000
Salaries paid during the year (gross) 390,000

On December 31, 2013, what amount should be reported as accrued salaries payable?
a. 94,000
b. 82,000
c. 70,000
d. 30,000
44. Oliver Company reported rental revenue of P2,210,000 in the cash basis income tax return for
the year ended November 30, 2013. Additional information is as follows:
Rent Receivable – November 30, 2013 1,060,000
Rent Receivable – November 30, 2012 800,000
Uncollectible rent written off during the fiscal year 30,000

Under accrual basis, what amount should be reported as rental revenue?


a. 1,920,000
b. 1,980,000
c. 2,440,000
d. 2,500,000
45. On December 31,2013, Melisa Company had the following balances in the accounts it maintains
at First State Bank:
Checking account #101 1,750,000
Checking account #201 (100,000)
Time deposit 250,000
Commercial papers 1,000,000
90-day treasury bill, due March 1, 2014 500,000
180-day treasury bill, due March 1, 2014 800,000

On December 31, 2013, what total amount should be reported as cash and cash equivalent?
a. 3,400,000
b. 2,000,000
c. 2,400,000
d. 3,200,000
46. Michael Company reported net income of P7,500,000 for the current year. The following
account balances are provided for the preparation of the statement of cash flows:
January 1 December 31
Accounts Receivable 1,150,000 1,450,000
Allowance for uncollectible accounts 40,000 50,000
Prepaid rent expense 620,000 410,000
Accounts Payable 970,000 1,120,000

What is the net cash provided by operating activities?


a. 7,270,000
b. 7,430,000
c. 7,550,000
d. 7,570,000
47. Angelica Company reported net income of P3,000,000 for the current year. Changes occurred in
certain accounts as follows:
Equipment 250,000 increase
Accumulated Depreciation 400,000 increase
Note Payable 300,000 increase

During the year, the entity sold equipment costing P250,000 with accumulated depreciation of
P150,000 for gain of P50,000. In December of the current year, the entity purchased equipment
costing P500,000 with P200,000 cash and a 12% note payable of P300,000. What amount
should be reported as net cash provided by operating activities?
a. 3,400,000
b. 3,500,000
c. 3,550,000
d. 3,600,000
48. Roxette Company reported the following information in the year-end financial statements:
Capital expenditures 1,000,000
Capital lease payments 125,000
Income taxes paid 325,000
Dividends paid 200,000
Net interest payments 220,000

What total amount should be reported as supplemental disclosures in the statement of cash
flows prepared using the indirect method?
a. 545,000
b. 745,000
c. 1,125,000
d. 1,870,000
49. Erica Company purchased a machine for P1,150,000 on January 1, 2013, the entity’s first day of
operation. At the end of the year, the current cost of the machine was P1,250,000. The
machine has a five-year life with no residual value and is depreciated by the straight line
method. For the year ended December 31, 2013, what is the amount of depreciation expense
that should be reported in the current cost income statement?
a. 140,000
b. 230,000
c. 240,000
d. 250,000
50. On January 1, 2010, SME acquired a trademark for a line of products from a competitor for
P3,000,000. The SME expected to continue marketing the line of products using the trademark
indefinitely. An analysis of market provides evidence that the line of trademarked products may
generate net cash inflows for the acquiring entity for an indefinite period. Management is
unable to estimate the useful life of the trademark. In 2013, a competitor unexpectedly
revealed a technological breakthrough that is expected to result in a product, that when
launched by the competitor, will extinguish demand for SME’s patented product line. The
demand for SME’s patented product line is expected to remain strong until December 2015,
when the competitor is expected to launch the new product. On December 31, 2013, SME
assessed the recoverable amount of the trademark at P500,000. SME intended to continue
manufacturing the patented products until December 31, 2015. The financial year-end is
December 31. What amount of impairment loss should recognized in 2013 with respect to the
trademark?
a. 3,000,000
b. 2,500,000
c. 900,000
d. 0