Reference no: EM132743914
Question: Celltower is a public limited company that provides mobile telecommunication services. Celltower has invested heavily in network licences and transmission infrastructure. Technological advances are continuous and require ongoing investment by service providers, to maintain competitive position. Network licences are limited by government, to protect investors.
Celltower researched the economic and operational feasibility of extending its network during the current reporting year. This research identified possible regions where Celltower might install new base stations for the telephone network. Celltower selected a preferred region, based upon economic feasibility. Internal costs of this research were $250,000 and external costs were $150,000.
Celltower subsequently engaged external consultants to identify the optimal site within that region, for signal strength and coverage. The consultants charged $100,000 for the advice.
Celltower then entered into a contract with the local area government, to use land upon which the base station will be built. The contract is for 10 years and commenced on 1 September 2020. Celltower is to make 10 annual payments of $200,000 under the contract, with the 1st payment on 1 September 2020. The effective interest rate is 8% and the discount factor is 8.139. There is no right to renew the contract and government retains legal title to the land.
All of these activities occurred within the reporting year to 30 September 2020. Construction of the base station will be completed in the 1st quarter of the new reporting year, at a cost of $200,000.
Required: Discuss the classification, recognition, measurement and disclosure of these transactions in the financial statements for the reporting year to 30 September 2020, with reference to IFRS. Provide the accounting entries and balances
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