Radio Suara Damai (RSD) obtained a broadcasting licence from the government by separate acquisition. a. The broadcasting licence is renewable every 10 years if RSD provides at least an average level of service to its customers and complies with the relevant legislative requirements. The licence may be renewed indefinitely at little cost and has been renewed twice before the most recent acquisition. RSD intends to renew the licence indefinitely and evidence supports its ability to do so. Historically, there has been no compelling challenge to the licence renewal. The technology used in broadcasting is not expected to be replaced by another technology at any time in the foreseeable future. Therefore, the licence is expected to contribute to RSD’s net cash inflows indefinitely. b. The licensing authority subsequently decides that it will no longer renew broadcasting licences, but rather will auction the licences. At the time the licensing authority’s decision is made, the RSD’s broadcasting licence has three years until it expires. RSD expects that the licence will continue to contribute to net cash inflows until the licence expires. Discuss the implication of the transactions and propose the useful life of the licence obtained.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Radio Suara Damai (RSD) obtained a broadcasting licence from the government by separate acquisition.
- a. The broadcasting licence is renewable every 10 years if RSD provides at least an average level of service to its customers and complies with the relevant legislative requirements.
The licence may be renewed indefinitely at little cost and has been renewed twice before the most recent acquisition. RSD intends to renew the licence indefinitely and evidence supports its ability to do so. Historically, there has been no compelling challenge to the licence renewal. The technology used in broadcasting is not expected to be replaced by another technology at any time in the foreseeable future. Therefore, the licence is expected to contribute to RSD’s net
- b. The licensing authority subsequently decides that it will no longer renew broadcasting licences, but rather will auction the licences. At the time the licensing authority’s decision is made, the RSD’s broadcasting licence has three years until it expires. RSD expects that the licence will continue to contribute to net cash inflows until the licence expires.
Discuss the implication of the transactions and propose the useful life of the licence obtained.
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