Question

In: Accounting

BBF Inc. owns a broadcast licence it purchased for $96,250, which is renewable every 10 years...

BBF Inc. owns a broadcast licence it purchased for $96,250, which is renewable every 10 years if BBF complies with regulatory requirements and provides an acceptable level of service to its customers. The licence may be renewed indefinitely at little cost and was renewed twice prior to BBF purchasing it. BBF intends to renew the licence indefinitely, and evidence supports its ability to do so. Historically, there has been no compelling challenge to the renewal of the licence. It is not expected that the technology used in broadcasting will be replaced by another technology any time in the foreseeable future. Therefore, the cash flows from that licence are expected to continue indefinitely. Since the date of purchase two years ago, BBF has not recorded any amortization on the basis that the intangible asset has an indefinite useful life. On January 2, 2020, the regulator advised BBF that it will no longer renew broadcast licences but will auction them off. At that date, the broadcast licence has two and one-half years until it expires. The cash flows from the licence are expected to continue until the licence expires.

Does this change require a change in accounting policy?
What journal entry, if any, should BBF Inc. record for the fiscal year ending December 31, 2020? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

(To record amortization.

Solutions

Expert Solution

An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.

In this case, Broadcast Licence purchased by BBF Inc. is an Intangible Asset.

The depreciable amount of an intangible asset should be allocated on a systematic basis over the best estimate of its useful life. Amortisation should commence when the asset is available for use.

In this case, only two and a half years are left for the expiry of the Licence. No amortisation was done in any of the Previous years On January 2, 2020, the regulator advised BBF that it will no longer renew broadcast licences but will auction them off. Now, Amortization will be done in two and a half year. The journal entry required at the close of year (December 31, 2020) is

Particulars Amount    Amount

Broadcast Licence Fee Amortization Expense A/c Dr.    $38,500

To Broadcast Licence Fee Asset A/c $38,500

(Being Licence fee amortised)

Calculation of Broadcasting Licence Fee

=    Licence Fee Amount * 1/2.5 years

=    96,250 * 1/2.5

=    $38,500

Also, there will be no change in accounting policy, since, there will be no renewal of Licence at the expiry of licence and it will be auctioned. So amortization will be done on the basis of Life remaining. Earlier it was not amortized because of having indefine useful life.


Related Solutions

At the end of 2020, Bridgeport Corporation owns a licence with a remaining life of 10...
At the end of 2020, Bridgeport Corporation owns a licence with a remaining life of 10 years and a carrying amount of $528,000. Bridgeport expects undiscounted future cash flows from this licence to total $532,500. The licence’s fair value is $423,000 and disposal costs are estimated to be nil. The licence’s discounted cash flows (that is, value in use) are estimated to be $477,700. Bridgeport prepares financial statements in accordance with IFRS. Determine if the licence is impaired at the...
Sam owns 1,500 shares of Eagle, Inc. stock that he purchased over 10 years ago for...
Sam owns 1,500 shares of Eagle, Inc. stock that he purchased over 10 years ago for $80,000. Although the stock has a current market value of $52,000, Sam still views the stock as a solid long-term investment. He has sold other stock during the year with overall gains of $30,000, so he would like to sell the Eagle stock and offset the $28,000 loss against these gains—but somehow keep his Eagle investment. He has devised a plan to keep his...
[10] For 19 years, Betty was hostess of the Tournament of Roses Parade (which is every...
[10] For 19 years, Betty was hostess of the Tournament of Roses Parade (which is every year before the Rose Bowl). Of all the parades on television that exist, which is the favorite? A random sample of people was taken, with the results summarized below: Men Women Total Rose Parade 42 55 97 Thanksgiving Parade 75 162 237 Parades? Who cares! 218 182 400 Total 335 399 734 At the .05 level of significance, is there an association between gender...
Joe owns 1,500 shares of Eagle, Inc. stock that he purchased over ten years ago for...
Joe owns 1,500 shares of Eagle, Inc. stock that he purchased over ten years ago for $80,000. Although the stock has a current market value of $52,000, same still views the stock as being a solid long-term investment. He has sold other stock during the year with overall gains of $30,000, so he would like to sell the Eagle stock and offset the $28,000 loss against these gains - but somehow keep his Eagle investment. He has devised a plan...
Subs Ltd owns a machine that cost $200,000, which was to be depreciated over 10 years...
Subs Ltd owns a machine that cost $200,000, which was to be depreciated over 10 years on a straight-line basis (zero residual value). What would the accumulated depreciation be after three years? $ ____ What would the carrying amount be after three years? $ ____ Assume Parent Ltd acquired all of the shares in Subs Ltd at this time. As part of the acquisition analysis, the fair value of the machine was estimated to be $154,000. The revaluation did not...
A new renewable energy generation system has a life-time of 10 years. It is assumed that...
A new renewable energy generation system has a life-time of 10 years. It is assumed that the salvage value of the system at the end of the 10 years' life-time is negligible. The initial (Present time) investment of the system costs 50,000 HK$. The manufacturer agrees to maintain the system every year over the 10 years' life-time with a uniform annual maintenance fee of 1000 HK$/year. At the end of the 5th year, a key component should be replaced, which...
A new renewable energy generation system has a life-time of 10 years. It is assumed that...
A new renewable energy generation system has a life-time of 10 years. It is assumed that the salvage value of the system at the end of the 10 years' life-time is negligible. The initial (Present time) investment of the system costs $50,000. The manufacturer agrees to maintain the system every year over the 10 years' life-time with a uniform annual maintenance fee of $1000/year. At the end of the 5th year, a key component should be replaced, which will cost...
Oliver, a calendar-year taxpayer, owns 50 shares of Copper Corporation stock, which was purchased two years...
Oliver, a calendar-year taxpayer, owns 50 shares of Copper Corporation stock, which was purchased two years ago for $30,000. Oliver sells all 50 shares on December 31, of the current year (2019), for $20,000 and on January 15 (2020), of the following year, purchases 25 shares of Copper Corporation stock. Oliver's recognized loss will be (LABEL AND SHOW ALL WORK WITH CALCULATIONS) A) $0 B) $5,000. C) $7,500. D) $10,000.
The state government maps have to be updated every 5 years or 10 years. This year...
The state government maps have to be updated every 5 years or 10 years. This year (2020), a surveying agency was given the task of updating the Texas state map. What surveying technique would you choose and why? The surveyors have many tools to complete the survey and generate the new maps. What surveying tools might be optimal and accurate. Note: You can choose any tool or survey technique to justify your answer but an ideal option is to think...
Jensen Company owns a building in a suburban industrial park. It purchased the building four years...
Jensen Company owns a building in a suburban industrial park. It purchased the building four years ago for $3 million. It is now deciding whether to lease the building or to use it as a distribution center. It could be rented immediately. Given today’s market conditions, rental income of $120,000 per year would be expected. To convert the building to make it useful as a distribution center would require an immediate expenditure of $400,000. Having the distribution center at this...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT