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- May 28, 2011 at 2:42 pm #48707
The Q was as follows:
Rod acquired 80% of Reel at 1 Dec 20×0.
The group operate in pharmaceutical industry and incures significant amount expenditure on development of products. These cost were formerly written off to I/S as incurred but then reinstated when the related products were brought into commercial use. The reinstated costs are shown as ‘development inventories’. The cost did not meet the IAS38 for calssification as intangibles and it’s likely that the net cash inflows from these products will be in excess of the development costs.
In the current year, Reel has included $20m of these costs in inventory. Of these cost $5m relate to expenditure on a product written off in period prior to 1 Dec 20×0. Commercial sales of this product has commenced during the current period. The accountant now wish to enxure that the FS comply with IAS/IFRS as regards this matter.The answer was to adjust the group FS as follows:
Dr Retained earings 20m
Cr inventory 20mMy question was :
1.why not adjust as follows:
Dr goodwill 5m
Retained earings 15m
Cr inventory 20m
Because the context said: $5m relate to expenditure on a product written off in period prior to 1 Dec 20×0,so I thought 5m should be part of what we bought at the acqsition date or something of a adjustment of errors.
2.what does the sentence ‘it’s likely that the net cash inflows from these products will be in excess of the development costs’ indicate? If not having this sentence, what will change?Thanks so much!
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