MABANGO CORP. holds a valuable patent on a POLLUTION GADGET that prevents certain types of air pollution. MABANGO does not manufacture or sell the products but it develops processes. Instead, it conducts research and develops products and processes which it patents and then assigns the patents to manufacturers on a royalty basis. Occasionally, it sells a patent. The following present the summary of the activities traced during the audit in relation to the aforementioned patent: 2016-2017 Research conducted to develop POLLUTION GADGET: P3,840,000 Jan. 5, 2018 Design and construction of prototype P876,000 March 15 Testing the prototype models P420,000 Jan 2, 2019 Legal and other professional fees to process the patent application (useful life = legal life) P620,000 Dec 10, 2021 Legal fees paid to successfully defend the device patent P357,000 Jan. 3, 2023 Acquisition of a competitive patent aimed at protecting old patent P406,000 Jan. 5, 2024 Acquisition of the related patent which extended the life of the patents for additional 2 years P654,375 Dec.31, 2026 Legal fees paid in unsuccessful patent infringement suit against a competitor P250,000 Requirements: Based on the above examination, answer the following: (round off to nearest one peso) 1. What is the correct cost of the patent upon initial recognition? 2. What is the carrying value of the patent on December 31, 2020? 3. What is the carrying value of the patent on December 31, 2023?
PROBLEM
MABANGO CORP. holds a valuable patent on a POLLUTION GADGET that prevents certain types of air pollution. MABANGO does not manufacture or sell the products but it develops processes. Instead, it conducts research and develops products and processes which it patents and then assigns the patents to manufacturers on a royalty basis. Occasionally, it sells a patent.
The following present the summary of the activities traced during the audit in relation to the aforementioned patent:
2016-2017 Research conducted to develop POLLUTION GADGET: P3,840,000
Jan. 5, 2018 Design and construction of prototype P876,000
March 15 Testing the prototype models P420,000
Jan 2, 2019 Legal and other professional fees to process the patent application
(useful life = legal life) P620,000
Dec 10, 2021 Legal fees paid to successfully defend the device patent P357,000
Jan. 3, 2023 Acquisition of a competitive patent aimed at protecting old patent P406,000
Jan. 5, 2024 Acquisition of the related patent which extended the life of the patents for additional 2 years P654,375
Dec.31, 2026 Legal fees paid in unsuccessful patent infringement suit against a competitor P250,000
Requirements:
Based on the above examination, answer the following: (round off to nearest one peso)
1. What is the correct cost of the patent upon initial recognition?
2. What is the carrying value of the patent on December 31, 2020?
3. What is the carrying value of the patent on December 31, 2023?
4. What is the carrying value of the patent on December 31, 2025?
5. What is the total loss from patent write off should be recognized in 2026?
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