CERTYNEX IFRS ACADEMY

Arvenor acquires for 200,000 a 4-year licence to operate a mineral water spring. The licence can be renewed for a further 4 years, but renewal requires the payment of a fee of 180,000, which is significant compared with the benefits expected from the renewal. Arvenor intends to renew. Which useful life should be used and how should the renewal fee be analysed?

8 years: the intention to renew justifies amortising the 200,000 over the total term of both periods.

4 years; if the licence is renewed, the fee will represent the cost of acquiring a new asset at that date.

8 years, adding the fee of 180,000 to the cost of the licence now, giving a depreciable amount of 380,000.

An indefinite useful life, since the licence is renewable and Arvenor intends to keep it for the long term.