Dear Mike,
I hope you can help me with the same question. Here is the scenario:
Advent is a publicly listed company. Details of Advent’s non-current assets at 1 October 2008 were:
Land and buildings
Cost/valuation: $280
Accum.depn: $40
Carrying amount: $240
Plant
Cost/valuation: $150
Acc. Depn: $105
Carrying amount: $45
Telecom. Licence
Cost/valuation: $300
Accum. Amortisation: $30
Carrying amount: $270
The following information is relevant:
1) the land and building were revalued on 1 October 20X3 with $80 million attributable to the land and $200 to the building. At that date the estimated remaining life of the building was 25 years. A further revaluation was not needed until 1 October 20X8 when the land and building were valued at $85 million and $180 million respectively. The remaining estimated life of the building at this date was 20 years.
2) plant is depreciated at 20% per annum on cost with time apportionment where appropriate. On 1 April 20X9 new plant costing $45 million was acquired. In addition, this plant cost $5 million to install and commission. No plant is more than 4 years old.
3) the telecommunications licence was bought from the government on 1 October 20X7 and has a 10 year life. It is amortised on a straight line basis. In September 20X9, a review of the sales of the products related to the licence showed them to be very disappointing. As a result of this review the estimated recoverable amount of the licence at 30 September 20X9 was estimated only at $100 million.
There were no disposals of non-current assets during the year to 30 September 20X9.
The question seemingly relates to point 3 of the scenario:
“Advent’s licence is now carried at its recoverable amount. How would the recoverable amount be treated?”
A. Deducted from finance costs
B. Deducted from the cost of the asset
C. Recognised as investment income
D. Deducted from administrative expenses
All 4 options seem wrong to me but apparently the answer says the correct answer is A without providing any explanation as to why.
Could you please let me know your thoughts.
Thanks so much in advance.
Kind regards,
Maro