Illustration: Intangible assets – separability and contractual legal
criteria
On January 1, 2020, Popoy Co. acquired all the assets and liabilities of
Basha Co. for ₱1,000,000. Relevant financial information of Basha are as
follows:
Carrying amounts
Other assets
Fair values
1,300,000
1,180,000
100,000
-
-
50,000
100,000
20,000
1,500,000
1,250,000
Bonds Payables
400,000
450,000
Total Liabilities
400,000
450,000
Computer software
Patent
Goodwill
Total Assets
Liabilities
Additional information:
 The computer software is considered obsolete
 The patent has a remaining useful life of 10 years and a remaining
legal life of 12 years.
 Basha Co. has research and development (R&D) projects with fair
value of ₱50,000. However, Basha recognized the R&D costs as
expenses when they were incurred.
How much is the goodwill or gain on bargain purchase?
Solution:
Consideration transferred
1,000,000
Non-controlling interest in the acquiree
-
Previously held equity interest in the acquiree
-
Total
1,000,000
Fair value of net identifiable assets acquired
(830,000)
Goodwill
170,000
The fair value of net identifiable assets acquired is computed as follows:
Fair value of identifiable assets acquired, excluding
computer software and recorded goodwill but
including patent and R&D
1,280,000
Fair value of liabilities assumed
(450,000)
Fair value of net identifiable assets acquired
830,000
An acquirer recognizes an acquiree’s R&D as intangible asset even if the
acquiree has already expensed the related costs.
Illustration 2: Intangible assets
On January 1, 2020, Popoy Co. acquired all the assets and liabilities of XYZ,
Inc. for ₱1,500,000. XYZ’s assets and liabilities have fair values of
₱1,600,000 and ₱600,000, respectively. Not included in the fair of assets
are the following unrecorded intangible assets:
Type of intangible asset
Fair value
Customer list
50,000
Customer contract #1
20,000
Customer contract #2
10,000
Order (production) backlog
20,000
Internet domain name
25,000
Trademark
35,000
Trade secret processes
25,000
Mask words
15,000
Total
200,000
Additional information:
 Customer contract #1 refers to an agreement between Basha and a
customer, wherein Basha is to supply goods to customer for a period
of 5 years. The remaining period of the contract is 3 years. The
agreement is expected to be renewed at the contract-end but is not
separable.
 Customer contract #2 refers to Basha’s insurance segment’s portfolio
of one-year motor insurance contracts that are cancellable by policy
holders.
 Basha transacts with its customers solely through purchase and
sales orders. As of acquisition date, has a backlog of customer
purchase orders from 60% of its customers, all of whom are recurring
customers. The other 40% are also recurring customers but Basha
has no open purchase orders or other contracts with those
customers.
 The internet domain name is registered.
How much is the goodwill or gain on bargain purchase?
Solution:
Consideration transferred
1,500,000
Non-controlling interest in the acquiree
-
Previously held equity interest in the acquiree
-
Total
Fair value of net identifiable assets acquired
Goodwill
1,500,000
(1,200,000)
300,000