ABC Asset Inc. owns a freely transferable taxi operator's license, which it acquired on January 1,20X5, at an initial cost of $10,000.

ABC Asset Inc. owns a freely transferable taxi operator's license, which it acquired on January 1,20X5, at an initial cost of $10,000. The useful life of the license is five years (based on the date it is valid for). The entity uses the straight-line method to amortize the intangible. Such licenses are frequently traded either between existing operators or with aspiring operators. At the balance sheet date, on December 31, 20X6, due to a government-permitted increase in fixed taxi fares, the traded values of such a license was $12,000. The accumulated amortization on December 31, 20X6, amounted to $4,000.

Required: What journal entries are required at December 31, 20X6, to reflect the increase/decrease in carrying value (cost or revalued amount less accumulated depreciation) on the revaluation of the operating license based on the traded values of similar license? Also, what would be the resultant carrying value of the intangible asset after the revaluation?

2. XYZ Limited has recently obtained some patents considered useful in its manufacture of men’s shoes. The patents consist of:

Patent XC456, acquired from a leather manufacturing firm for $425000.

Patent CU254, obtained as part of a bundle of assets acquired from the conglomerate U- Beauty Fashions.

XYZ Ltd is also in the process of preparing an application for a patent for a new process of softening leather. It has spent a number of years refining this process. The accountant for XYZ Ltd is unsure how to account for patents under IFRSs. He has asked you to prepare a detailed report for him on the principles of how to account for patent, using the examples above to illustrate the appropriate accountant procedures.

Required: Prepare a report for XYZ Ltd.’s accountant.

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