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Hello,
The information provided says that the licence was purchased on 1 Oct 20×3, network coverage for it to be operational obtained in April 20×5 and was recognised at 30 Sept 20×4. While I understand that amortisation must being from April 20X5, I don’t get how the recognition at Sept is the correct treatment. Shouldn’t the licence be recognised as an intangible asset on 1 Oct 20X3 or on 1 April 20X5 if that’s when the economic benefits become probable? Could you please tell me what the right treatment would be?
Thank you.
A company doesn’t prepare financial statements on the first day of the year – so if an asset is bought on the first day of the year, the first financial statements in which it will be recognised will be prepared at the reporting date. Yes it will have been recorded on 1 Oct 20×3 (Dr Intangible/Cr Cash).
Appreciate that it could not be correct that recognition of a PURCHASED licence should be deferred to a later date (e.g. 1 April 20×5) – if management didn’t expect the licence to have benefits, they wouldn’t have bought it.
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