Question
On 1 July 2022, Abacus Digital Ltd paid $1.5 million to acquire an interactive website. This website, which was established in 2010, contains a large
On 1 July 2022, Abacus Digital Ltd paid $1.5 million to acquire an interactive website. This website, which was established in 2010, contains a large number of discussion forums principally related to technology although there are also forums related to lifestyle and shopping. Currently the website has over 750,000 registered accounts although there are large numbers of unregistered guests that regularly use the site. The discussion forums enable users to discuss topics and leave comments. Users can create sub-topics within the categories but these are subject to approval by moderators.
Abacus Digital Ltd intends to generate revenue by selling advertising space on the website. It is also considering obtaining sponsorship deals with selected technology companies.
Abacus Digital Ltd does not legally own the website. The internet domain name is registered and Abacus Digital Ltd pays a yearly registration fee (of $100) to continue to use the domain name. It also pays a monthly fee (of $600) to a web hosting company to lease server space and bandwidth in order to publish the website on the internet so that it can be accessed.
Abacus Digital Ltd expects to pay approximately $25,000 each year to operate the website. These costs are necessary to maintain the infrastructure, graphical design and content of the website.
Required (a) Explain whether the website (1) satisfies the definition of an intangible asset, and (2) should be recognised as an intangible asset in accordance with AASB 138 Intangible Assets. (3 marks)
(b) Explain how the website would be measured (1) on initial recognition and (2) subsequent to initial recognition. (1 mark)
(c) Explain whether the useful life of the website would be assessed as finite or indefinite. (1 mark)
(d) How should the ongoing costs of (1) domain registration, (2) web hosting, and (3) operating costs be treated? (1 mark)
You will find the following resources useful in answering this question: AASB 138 Intangible Assets
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