Exercise 12-11 (Part Level Submission) Tones Industries has the following patent
ID: 2492485 • Letter: E
Question
Exercise 12-11 (Part Level Submission) Tones Industries has the following patents on its December 31, 2013, balance sheet. Patent Item Initial Cost Date Acquired Useful Life at Date Acquired Patent A $46,308 3/1/10 17 years Patent B $25,680 7/1/11 10 years Patent C $26,880 9/1/12 4 years The following events occurred during the year ended December 31, 2014. 1. Research and development costs of $253,120 were incurred during the year. 2. Patent D was purchased on July 1 for $39,558. This patent has a useful life of 91/2 years. 3. As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B’s value may have occurred at December 31, 2014. The controller for Tones estimates the expected future cash flows from Patent B will be as follows. Year Expected Future Cash Flows 2015 $2,030 2016 2,030 2017 2,030 The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.) Collapse question part (a) Incorrect answer. Your answer is incorrect. Try again. Compute the total carrying amount of Tones’ patents on its December 31, 2013, balance sheet. (Round all answers to 0 decimal places, e.g. 8,564) Total carrying amount $Entry field with incorrect answer 71846 SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 3 of 3 used Collapse question part (b) Compute the total carrying amount of Tones' patents on its December 31, 2014, balance sheet. (Round all answers to 0 decimal places, e.g. 8,564) Total carrying amount
Explanation / Answer
Answer
Answer 1
Patent A
Figures in $
Particulars
Amount
Initial Cost
a
46,308
Total life (in months)
b
204
(17*12)
monthly Amortisation (a/b)
c
227
Total time period from 1st march, 2010 to 31 December, 2013 (in months)
d
46
Total amortisation up to 31 December, 2013 (c*d)
e
10442
Carrying value as on December 31, 2013 (a-e)
35,866
Patent B
Figures in $
Particulars
Amount
Initial Cost
a
25,680
Total life (in months)
b
120
(10*12)
Monthly Amortisation (a/b)
c
214
Total time period from 1st July, 2011 to 31 December, 2013 (in months)
d
30
Total amortisation up to 31 December, 2013 (c*d)
e
6420
Carrying value as on December 31, 2013 (a-e)
19,260
Patent C
Figures in $
Particulars
Amount
Initial Cost
a
26,880
Total life (in months)
b
48
(4*12)
Monthly Amortisation (a/b)
c
560
Total time period from 1st September, 2012 to 31 December, 2013 (in months)
d
16
Total amortisation up to 31 December, 2013 (c*d)
e
8960
Carrying value as on December 31, 2013 (a-e)
17,920
Answer : Total Carrying value of Patent A, B and C as on December 31, 2013 is $ 73,046
Answer 2
Note : Research and development costs of $253,120 were incurred during the year has not created any patent asset, so it will not form part of Patent Asset Account.
Patent A
Figures in $
Carrying value as on December 31, 2013
a
35,866
Total Amortisation for the year 2014
b
2724
227*12
Carrying value as on December 31, 2014 (a-b)
33,142
Patent B
Figures in $
Year
Cashflow
Disc Rate : 8%
Present value
A
B
A*B
2015
2,030
0.925926
1879.63
2016
2,030
0.857339
1740.398
2017
2,030
0.793832
1611.479
Fair value
5231.51
Figures in $
Carrying value as on December 31, 2013
a
19,260
Total Amortisation for the year 2014
b
2568
214*12
Carrying value as on December 31, 2014 before impairment (a-b)
c
16,692
Impairment
d
11,460.49
Carrying value as on December 31, 2014 After impairment (c-d)
5231.51
Patent C
Figures in $
Particulars
Amount
Carrying value as on December 31, 2013
a
17,920
Total Amortisation for the year 2014
b
6720
560*12
Carrying value as on December 31, 2014 (a-b)
11,200
Patent D
Figures in $
Particulars
Amount
Initial Cost
a
39,558
Total life (in months)
b
114
(9.5*12)
Monthly Amortisation (a/b)
c
347
Total time period from July 1, 2014 to December 31, 2014 (in months)
d
6
Total amortisation up to 31 December, 2014 (c*d)
e
2082
Carrying value as on December 31, 2014 (a-e)
37,476
Answer : Total Carrying value of Patent A, B C & D as on December 31, 2014 is $ 87,049.51
Patent A
Figures in $
Particulars
Amount
Initial Cost
a
46,308
Total life (in months)
b
204
(17*12)
monthly Amortisation (a/b)
c
227
Total time period from 1st march, 2010 to 31 December, 2013 (in months)
d
46
Total amortisation up to 31 December, 2013 (c*d)
e
10442
Carrying value as on December 31, 2013 (a-e)
35,866
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