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Problem 1: Auditing and Assurance Principles

The document summarizes the activities and costs related to a valuable patent held by Surigao Inc. over several years: - The initial cost of the patent upon recognition in 2024 was ₱558,000. - The carrying value of the patent on December 31, 2024 was ₱527,000 after one year of amortization. - Additional acquisitions in 2028 increased the carrying value to ₱787,500 by the end of that year. - Further acquisitions in 2029 brought the carrying value to ₱1,065,442 by the end of 2030. - The amount to be recognized in the profit and

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597 views3 pages

Problem 1: Auditing and Assurance Principles

The document summarizes the activities and costs related to a valuable patent held by Surigao Inc. over several years: - The initial cost of the patent upon recognition in 2024 was ₱558,000. - The carrying value of the patent on December 31, 2024 was ₱527,000 after one year of amortization. - Additional acquisitions in 2028 increased the carrying value to ₱787,500 by the end of that year. - Further acquisitions in 2029 brought the carrying value to ₱1,065,442 by the end of 2030. - The amount to be recognized in the profit and

Uploaded by

Mitch Minglana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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AUDITING AND ASSURANCE PRINCIPLES

Problem 1
Surigao Inc., holds a valuable patent on a precipitator that prevents certain types of air pollution.
Surigao does not manufacture or sell the products and process it develops. Instead, it conducts
research and develops products and processes which its patents, and then assigns to manufactures
on a royalty basis. Occasionally it sells patents. The following presents the summary of the
activities in relation to the aforementioned patent:
2021-2022 Research aimed at the discovery of the new technology 3,840,000
1/1/2023 Design and construction of a prototype 876,000
3/15 Testing the prototype models 420,000
1/2/2024 Legal and other professional fees to process the patent
Application (useful life = 18 yrs) 558,000
12/10/2026 Legal fees paid to successfully defending the device patent 357,000
1/1/2028 Acquisition of a competitive patent aimed at protecting old
Patent that resulted in an increased revenue 406,000
1/1/2029 Acquisition of the related patent which extended the life
Of the patents for additional 2 years 420,000
12/31/2031 Legal fees paid in unsuccessful patents infringement suit
Against a competitor 250,000
Compute for:
a. Cost of the patent upon initial recognition
= ₱ 558,000
b. Carrying value of the patent on December 31 2024
= ₱ 527,000

Cost of Patent (2024) 558,000


Useful life = 18 Years /18
Amortization 31,000

Cost of Patent (2024) 558,000


Less: Amortization (31,000)
Carrying Value (2024) 527,000

c. Carrying value of the patent on December 31 2028


= ₱ 787,500

Carrying Value of Patent, beg. (2025) 527,000


2025 Amortization (31,000)
2026 Amortization (31,000)
2027 Amortization (31,000)
Carrying Value of Patent, end (2027) 434,000
Add: Acquisition of related patent (1/1/2028) 406,000
Total 840,000
2028 Amortization 52,500
Carrying Value of Patent, (12/31/2028) 787,500

d. Carrying value of the patent on December 31 2030


= ₱ 1,065,442

Carrying Value of Patent, beg. 2029 787,500


Acquisition of related patent (1/1/2029) 420,000
Total 1,207,500
2029 Amortization 71,029
2030 Amortization 71,029
Carrying Value of Patent, (12/31/2030) 1,065,442

e. Amount in total to be recognized in the P/L in 2031 in relation to the patent


= ₱ 994,413

Carrying Value of Patent, (12/31/2030) 1,065,442


2031 amortization 71,029
Carrying Value of Patent (2031) 994,413

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