QUESTION THREE [15]

Seven Oceans Limited is a small company involved in the fishing industry. It operates a number of fishing boats and fishes mainly for Tuna. The fish is processed, and canned tuna is supplied to supermarkets around the country.

On the 2nd of January 2019, the company acquired a fishing license at a cost of R600 000. The license has a legal life of four years with no residual value. The license grants Seven Oceans Limited the right to fish for tuna in a demarcated area off the Western Cape coast. No other fishing company may fish for tuna in this area in terms of the license.

The financial director, a retired accountant, expensed the cost of the fishing license on acquisition. The managing director who has some accounting knowledge has queried the expensing of the fishing license.

Seven Oceans Limited use the cost model in terms of accounting for intangible assets. No entries have been made in the accounting records relating to the fishing license during the current year. 4

Required:

Discuss the recognition and measurement only of the fishing license in the financial statements of Seven Oceans Limited at 31 December 2019, in terms of IAS 38, Intangible Assets.

Recognition (10 marks)

Measurement (5 marks)