Question

John has applied and been approved a licence to operate a casino in Melbourne, which later on he
named it The Casino East. John has received 10-year licence from Victorian Government to operate
the casino. He also received approval for Casino’s building for a long period of time (90 years).
John was instructed by the relevant Government agency to pay $180 million for the approved
casino’s licence and $80 million as prepaid rent covering the first 10 years of casino’s rental. John
has negotiated to pay $400,000 rental per year for the remaining 80 years of the lease.
With reference to relevant legislation and case law discuss whether casinos prepaid rent is
considered a revenue expense or a capital expense.

QUESTION 1: DIFFERENCE BETWEEN CAPITAL AND REVENUE EXPENDITURE	Weighting
Identification of material facts (issues) regarding John’s prepaid rent.	2 %
Identification and analysis of legal issues / legal question and relevant taxation law in regards to casino’s rental (e.g. ITAA 1936 and ITAA 1997).	2 %
Thorough yet succinct application of tax law (e.g. ITAA 1936 and ITAA 1997) to material facts in John’s case.	2 %
Detailed and accurate identification of the lump sum rental payment are reached.	3 %
Correct information and taxation law have been used and properly cited. A detailed analysis has been performed.	3 %
Ability to show excellent understanding of the cases and/or section of legislation, its context and application of taxation law. 3%

All the marking criteria need to answer.

Answer 1

Key Point :
licence to operate a casino in Melbourne " Casino Licence"
Legal Name as "The Casino East "
10-year licence from Victorian Government, also received approval for Casino’s building for a long period of time (90 years).
Licence Fees for 10 year	$180 million
$80 million as prepaid rent for First 10 Year
$400,000 rental per year for the remaining 80 years
considered a revenue expense or a capital expense ?
Answer
For Licence fee of $ 180 Million, Whole Amount would be capitalised and amourtised on next 10 years.
	$ 18 Million will be amortised every year till the validity of licence i.e next 10 year
As per IFRS 16
For Prepaid rent of $ 80 Million, Whole Amount would be capitalised and amourtised on next 10 years.
As per IFRS 16
Please Note :
Amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognized immediately before the effective date.