Cabcharge Australia Limited (CAB), a company listed on the ASX, supplies and services taxi metres. Nearly 18 000 taxis around Australia have an EFTPOS terminal supplied by CAB. CAB also has a presence in taxi ownership. It is affiliated with around 29 per cent of Australian taxis through its owned networks and 441 taxi licences. The Australian Competition and Consumer Commission (ACCC) alleged in June 2009 that CAB engaged in anti-competitive behaviour by refusing to deal with rivals on commercial terms, that it underpriced its taxi meters to lock in EFTPOS customers and that it struck a deal with a Townsville network that included removing a rival's EFTPOS terminals. CAB charges a 10 per cent service fee every time a card is swiped through a CAB EFTPOS terminal and CAB EFTPOS terminals are installed in 95 per cent of Australian taxis. The ACCC alleged that CAB breached the law by refusing to allow suppliers of rival EFTPOS terminals to process CAB transactions, by supplying taxi meters and fee schedules free or below cost and acquiring Townsville Taxis's charge account business and then replacing rival terminals with its own. If it is found that CAB has breached the relevant sections of the Trade Practices Act, the fines can be up to $10 million per breach.
a. Explain why taxi licencesare recognised as assets on CAB's balance sheet.
b. Explain if the pending lawsuit should be recognised on CAB's balance sheet as a liability. If not, should it be disclosed?
c. What do you expect happened to CAB's share price once it was announced that the ACCC would be pursuing legal action? Justify your expectations.
d. Investigate the outcome of the ACCC's allegations.