Ican 2024 Financial Reporting Question 7

Discuss the TWO measurement models for intangible assets.

Olumo-Taxi Limited’s financial year ends on December 31. The company adopted the revaluation model for its intangible assets and revalues them on a regular three-year cycle. However, for intangible assets with a finite life, Olumo-Taxi Limited transfers the relevant amount from revaluation reserve to retained earnings each year. During year 2019 Olumo-Taxi Limited incurred N700,000 on the process of preparing an application for licences for 15 taxis to operate in an holiday resort very close to Abeokuta, In order to prevent congestion and excessive traffic pollution, the licencing authority only allowed a small number of taxi to operate. The outcome of the company’s application was uncertain up to November 30, 2019 when the local government authority accepted its application. In December 2019, Olumo-Taxi Limited incurred a cost of N90,000 in registering its licences. The licences were for a period of 9 years from January 1, 2019. The licences are freely transferable and an active market in them exists. The fair value at December 31, 2019 was N94,500 per taxi and Olumo-Taxi Limited carried them at fair value in its statement of financial position at December 31, 2019.