Dopiaza, a public limited company, operates in the telecommunications industry. It has a reporting date of 30 November 20X7. The industry is capital intensive with heavy investment in licences and network infrastructure. Competition in the sector is fierce and technological advances are a characteristic of the industry. (a) Dopiaza is considering extending its network and has carried out a feasibility study during the year to 30 November 20X7. The design and planning department of Dopiaza conducted a study that identified five possible geographical areas where it might install a new base station for the telephone network. The internal costs of this study were $150,000 and the external costs were $100,000 during the year to 30 November 20X7. 

Following the feasibility study, Dopiaza selected the geographical area where it was going to install the base station. A further independent study has been carried out by third party consultants in an attempt to provide a preferred location within that area, as there is a need for the optimal operation of the network in terms of signal quality and coverage. The third party consultants have charged $50,000 for the study. 

Additionally, Dopiaza entered into a contract with the government of the region for access to the land upon which the base station will be situated. The contract with the government is for a period of 12 years and commenced on 1 November 20X7. Dopiaza paid $300,000 on 1 November 20X7 and will make monthly payments of $60,000 commencing on 1 December 20X7. There is no right of renewal of the contract and legal title to the land remains with the government. The directors wish to know how the costs associated with extending the network should be accounted for. 

Required: Discuss, with reference to IFRS Standards, the treatment of the above costs in the financial statements for the year ended 30 November 20X7.

Answer rating: 100% (QA)

In accordance with IFRS Standards the treatment of the costs associated with extending the network f... View the full answer