UNO Ltd is in the business of bottling wine and champagne, particularly for small wineries that cannot afford sophisticated technical equipment and who prefer to concentrate on the growing of grapes. The wine and champagne bottles used by UNO Ltd are in high demand as they have a built-in insulation device that keeps the contents of the bottle cold even when not refrigerated. In January 2021, DUO, a company experimenting with energy sources useful in combating climate change, produced a device which when attached to the outside of a container, could display the actual temperature of the liquid inside. The temperature is revealed by colour codes on the device. How this device could exactly be used with wine bottles had yet to be specifically determined. However, UNO Ltd believes that its employees have the skills that would enable the company to determine the feasibility of such a project. Whether the costs of incorporating the device into wine bottles would be prohibitive was unknown. UNO Ltd was concerned that competing wine-bottling companies might acquire the device from DUO so it paid $100,000 for the exclusive rights to use the device in conjunction with bottles. The accountant of UNO Ltd wants to measure the fair value of the device acquired.

REQUIRED:

Describe how UNO should apply AASB 13 Fair Value Measurement to measure the fair value of the right to use the temperature-revealing device (note, you only need to discuss the valuation premise and the valuation technique) in each of the following scenarios.

1.1 The Highest and Best Use (HBU) for the asset has market participants (i.e., other wine makers or even soft drink companies) using the device in conjunction with their bottling activities. (2 marks)

1.2 The Highest and Best Use (HBU) for the asset has market participants acquiring the rights to prevent the device from reaching the market and allowing competitors to achieve a significant marketing edge. (1 mark)

1.3 The Highest and Best Use (HBU) for the asset has market participants selling the device to non-competing companies, i.e., rather than further develop the device in relation to its applicability to use with bottles, market participants could allow other (non-competing) companies to use the device under a licensing program. (2 marks)