Reference no: EM132712154

BBF Inc. owns a broadcast licence it purchased for $105,000, which is renewable every 10 years if BBF complies with regulatory requirements and provides an acceptable level of service to its customers. The licence may be renewed indefinitely at little cost and was renewed twice prior to BBF purchasing it. BBF intends to renew the licence indefinitely, and evidence supports its ability to do so. Historically, there has been no compelling challenge to the renewal of the licence. It is not expected that the technology used in broadcasting will be replaced by another technology any time in the foreseeable future. Therefore, the cash flows from that licence are expected to continue indefinitely. Since the date of purchase two years ago, BBF has not recorded any amortization on the basis that the intangible asset has an indefinite useful life. On January 2, 2020, the regulator advised BBF that it will no longer renew broadcast licences but will auction them off. At that date, the broadcast licence has two and one-half years until it expires. The cash flows from the licence are expected to continue until the licence expires.

Problem 1: Does this change require a change in accounting policy?

Problem 2: What journal entry, if any, should BBF Inc. record for the fiscal year ending December 31, 2020?