Wilson Security Services Ltd was established in April 2015 to provide a range of

Question

Wilson Security Services Ltd was established in April 2015 to provide a range of security services (including patrol services, monitoring services and security consultancy services) for businesses and homes in the eastern suburbs of Sydney. According to the Security Industry Act 1997, businesses that engage in security services must hold a Master Licence which, for entities operating in NSW, is issued by NSW Police. In May 2015, Wilson Security Services Ltd submitted an application for a class MD Master Licence which is valid for five years from the date of issue and would permit Wilson Security Services Ltd to provide between 15 and 49 persons, on any one day, to carry on security activities. The fee for a new application for a class MD Master Licence for a corporation is $11,200 and this was paid by Wilson Security Services Ltd in May 2015. This fee is exempt from Goods and Services Tax.
On 1 July 2015, NSW Police issued the Master Licence to Wilson Security Services Ltd who then commenced operations. It is a condition of the Master Licence that it can only be used by Wilson Security Services Ltd and cannot be transferred to another party. The Master Licence can be renewed in five-years’ time at a cost of $10,900 if it is renewed before the expiry date (on-time renewal) or $11,200 if it is renewed within 90 days of the expiry date (late renewal). Renewal of the Master Licence by NSW Police is not automatic and requires the applicant (in this case Wilson Security Services Pty Ltd) to satisfy the same conditions that had be satisfied when their first Master Licence was issued.
Required
(a) Explain why the Master Licence satisfies the definition of an intangible asset in accordance with AASB 138 Intangible Assets. In particular, explain why the Master Licence satisfies the criterion of identifiability in the definition of an intangible asset.
(b) Explain how Wilson Security Services Ltd would measure the Master Licence subsequent to initial recognition?
(c) Apply the requirements of AASB 138 Intangible Assets and your own judgement to determine whether the useful life of the Master Licence is finite or indefinite?

Explanation / Answer

Ans a) AASB138 applies to all intangible assets but not on the following:

1) Intangible assets but comes under the scope of any other standards,

2)Financial Assets as per AASB132

3) Exploration and evaluation assets as per AASB6

4)Expenditure on developments and extraction of minerals, oil and other relating resources, hence we can say that Master Licence does not fall into any of the above listed exceptions. Hence It qualifies as per the definitions of Intangible assets. It also satifies the crieteria of identification because It is a liecense as per the identification rule which are listed below, liecence can be recognized as intangible assets.

Identification rules:

The identifiability criteria for an intangible asset is satisfied if it:

Is capable of being separated and sold, transferred, licenced, rented or exchanged either individually or together with another asset; or Arises from contractual or other legal rights., hence it is a liecense and it has legal rights.

Ans b) It can be subsequently recognised at cost model, which says that every year amortization should be charged against intangible assets. and the value of intangible assets shouldn be decreased by the amortization amount. Amortization per year can be calculated by dividing the cost of liecense by its useful year.

Ansc) it is finite becuase the life of it can nort exceed by the contracts, and we can also assess the benefits coming from the assets are restricted till the contract, once it expires it can not generate cash flow it has to renew hence it has finite useful life.

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