Hurtigruten 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 in its factory and the canned tuna is supplied to supermarkets around the country.
On 2 January 20X6 the company acquired a fishing licence at a cost of C600 000. The license has a legal life of four years with no residual value. The licence grants Hurtigruten 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 during the term of the licence. The financial director, a retired accountant, expensed the cost of the fishing licence on acquisition. The managing director (who has taken a keen interest inIFRS developments) has queried the expensing of the fishing licence:
No entries have been made in the accounting records relating to the fishing license during the current year.
Discuss the recognition, measurement and disclosure of the fishing license in the financial statements of Hurtigren Limited at 31 December 20X6, in terms of International Financial Reporting Standards.