Case: Whats in a name?

Port Property Ltd owns several investment properties, including a multi-storey office tower that is occupied by several tenants. Crows Super Ltd is a major tenant and currently has a lease for three floors of the building for the next five years.

The property manager of Port Property Ltd recently negotiated an agreement with Crows Super Ltd for naming rights for the officer tower with Crows Super Ltd. The agreement allows Crows Super Ltd to erect signage with their name and logo on the roof of the building, and for the building to be named Crows Super Tower.

The naming rights are for a period of five years, commencing 1 June 2021, and expiring at the end of their current lease, 31 May 2026. Crows Super Ltd is responsible for all costs associated with erecting, maintaining and subsequently removing the signage on the roof of the building owned by Port Property Ltd.

In return for the naming rights Crows Super Ltd was required to pay a non-refundable fee of $120,000 to Port Property Ltd. Crows Super Ltd paid the amount in full on 1 June 2021. Financing benefits are immaterial in this transaction because interest rates are very low.

The property manager suggested that the transaction would be great for Port Property Ltds profit margin because it generates sales revenue for the sale of property rights but has no cost of sales. However, the accountant was not so sure about the suggested accounting treatment and looked it up in the Companys accounting policy manual. On discovering that Port Property Ltd did not have an accounting policy for transferring naming rights for its buildings, the accountant has asked for your advice.

Required

Question 1

From the perspective of Port Property Ltd, what is the main accounting policy issue(s) that must be resolved in deciding how to account for the transaction with Crows Super Ltd? (approximately 15 50 words)

Question 2

Identify one principle that is relevant to the accounting policy issue(s) that you identified in question 1 AND explain why you chose that principle. Provide a reference: e.g., AASB XXX, para. zz; or Conceptual Framework, Chapter X, para. x.xx (approx.. 25 - 50 words)

Question 3

Identify another principle that is relevant to the accounting policy issue(s) that you identified in question 1. (up to 15 words) Provide a reference, e.g., AASB XXX, para. zz; or Conceptual Framework, Chapter X, para. x.xx.

Question 4

Describe an accounting policy to account for transactions for the transfer of naming rights, such as the transaction with Crows Super Ltd, in the books of Port Power Ltd. Your policy must be different from the policy suggested by the property manager. Do not justify your policy. Just describe it. (30 - 100 words)

Question 5

How much income in relation to the naming rights should Port Property Ltd recognise in profit of loss for the year ended 30 June 2021?

Please present your answer in the format, $XXX