Safe Ride Incorporated applied for several taxi licences for its taxicab operations in the City of Waterford and, on August 31,2014, incurred costs of$14,200 in the application process. The outcome of applying for taxi licences in the City of Waterford was uncertain, as the City has been known to limit the number of issued taxi licences in an effort to encourage use of public transportation.
The application was successful and on June 30, 2015, Safe Ride was granted 32 freely transferable taxi licences for a registration fee of $3,500 per licence. According to management, each licence has a useful life of only five years from the date of registration, because demand for taxi services in Waterford is expected to decrease significantly after the city's subway system is expanded. There is an active market for taxi licences in Waterford.
In 2016, in an effort to decrease traffic congestion in the city's downtown, the City did not issue any new taxi licences and the fair value of each taxi licence held by Safe Ride was $4,200 as of December 31, 2016. In 2018, due to a severe shortage of taxis in the city, the City decreased the registration fee and issued many new taxi licences. As of December 31, 2018, each taxi licence had value in use of $6,200, fair value of $1,400, and costs to sell of $200. Safe Ride amortizes intangible assets using the straight-line method, and prepares financial statements in accordance with IFRS.
Instructions
(a) Prepare the entry to record the costs incurred on August 31,2014.
(b) Prepare the entry to record the costs incurred on June 30, 2015.
(c) Assume that after initial recognition, Safe Ride uses the cost model to measure its intangible assets. Prepare the entries required on December 31, 2016, December 31, 2017, and December 31, 2018, and calculate the carrying amount of the intangible asset, if any, as at December 31, 2018.
(d) Assume that after initial recognition, Safe Ride uses the revaluation model (asset adjustment method) to measure its intangible assets. Prepare the entries required on December 31, 2016, December 31, 2017, and December 31, 2018, and calculate the carrying amount of the intangible asset, if any, as at December 31, 2018. Assume revaluation adjustments are made on December 31, 2016 and December 31, 2018.
(e) From the perspective of Safe Ride's auditor, discuss the criteria that must be met for the intangible asset to be measured using the revaluation model.