- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
- Posts
On 1 October 20X3 Dexterity acquired Temerity, a small company that specialises in pharmaceutical drug research and development. The purchase consideration was by way of a share exchange and valued at $35 million. The fair value of Temerity’s net assets was $15 million (excluding any items referred to below).
Temerity owns a patent for an established successful drug that has a remaining life of eight years. A firm of specialist advisors, Leadbrand, has estimated the current value of this patent to be $10 million, however the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness. If the trials are successful, the value of the drug is then estimated to be $15 million. Also included in the
company’s statement of financial position is $2 million for medical research that has been conducted on behalf of a client.At what amount should the patent acquired from Temerity be valued at 31 March 20X4?
1. The answer is $9375000
2. Firstly why brand is capitalized as an asset?
“the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness”. The outcome could be either positive or negative, which mean that for the time being there is no probable of future economic benefit.3. Please locate where I am getting things wrong and also how to obtain the answer.
Thanks.
“Firstly why brand is capitalized as an asset?”
Which brand?
When assessing fair values for the purposes of acquisition accounting, probabilities concepts go out of the window
Possible? Probable? Remote or virtually certain? Who cares! Include as an asset at date of acquisition the value that is given even though probability of a successful outcome is only a possibility
$10,000,000 over 8 years indicates a write off of $10,000,000 / 8 = $1,250,000 each year
But the acquisition was made 6 months in to the current year so there’s only 6 months worth of amortisation to account for
$1,250,000 x 6 / 12 = $625,000
And $10,000,000 – $625,000 = $9,375,000
OK?
- The topic ‘ias 38’ is closed to new replies.