Question
INTANGIBLES (IAS 28) & IMPAIRMENT OF ASSETS (IAS 36) PROBLEM Carrot Limited manages and operates toll roads on major national routes throughout the country. The
INTANGIBLES (IAS 28) & IMPAIRMENT OF ASSETS (IAS 36)
PROBLEM
Carrot Limited manages and operates toll roads on major national routes throughout the country. The company purchased a license to operate a toll road in the Eastern Cape seventeen years ago for an amount of P10,000,000. It was expected that the toll road would be in use for twenty years and the economic benefits will flow to the entity evenly over the twenty year period. The estimated toll road usage is 1,000,000 cars per year. At the time, there were no plans to construct alternative routes in the area. There is no active market for toll road licenses.
During the current year, the government announced plans, and construction began on a bridge in the area that would significantly reduce usage of the toll road. The directors estimated that the economic benefits flowing to the entity would decrease each year over the remaining three years. The estimated toll road usage is expected to drop to 800 000 cars, 600 000 cars and 400 000 cars, respectively, over the remaining three years of the license.
The right to operate the toll road was correctly recognized as an intangible asset upon purchase seventeen years ago.
Required: Determine the following:
1.Amortization during the 1st year.
2.Amortization during the 18th year.
3.Carrying value at the end of the 19th year.
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