The license is a purchased intangible asset, financed in part by a government grant. The accounting treatment for such an asset is guided by IAS 38 (Intangible Assets) and IAS 20 (Accounting for Government Grants and Disclosure of Government Assistance). There are two acceptable ways of accounting for the transaction:

1. Cost Model
   The asset is recorded at the nominal price of GH¢1,000,000 (the amount paid in cash) and is amortised over its five-year useful life. Therefore, the annual amortisation expense will be GH¢200,000 (GH¢1,000,000 ÷ 5 years).
2. Fair Value Model
   The asset is recorded at its fair value of GH¢3,000,000, and a government grant of GH¢2,000,000 is recognised (GH¢3,000,000 fair value less GH¢1,000,000 paid). The asset is then amortised over its five-year useful life at GH¢600,000 per annum (GH¢3,000,000 ÷ 5 years). Simultaneously, the grant is treated as deferred income and amortised to the income statement over the same period. This results in annual amortisation of GH¢400,000 (GH¢2,000,000 ÷ 5 years), which will offset the amortisation expense for the asset. Thus, the net charge to the income statement will be GH¢200,000 per annum.

Both methods result in the same net cost of GH¢200,000 per annum being charged to the profit or loss, but the second method (Fair Value Model) provides more accurate reporting of the financial grant received.

(4 marks evenly spread)