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in a consolidation question, there is this 5 mark part about dev. costs. it goes something like this:
“P has spent 600k upto 30 jun x9, when the results showd that the encryption software will be a success. the encryption product is now in full production and completed sometime after the year end. a competitor has offered 1.6m for the software, which has been deemed as its fair value. therefore the company has recognized the enryption at this value.”600k is expensed …. and my answer matches
but for the 1.6m i said yes. but the answer says no. the reason cited is that“… intangibles can only be revalued if an active market exists. this will not be the case for development costs as one of the key criteria for an active market is that the products are homogenous.”
are we to assume that enryption products are not homogenous? and if so, how do we reach that conclusion?
thanks
My understanding of encryption software is that it is unique – if it weren’t there would be no point in developing it – one would simply go out and buy it
If there were 500 companies developing encryption software, maybe, just maybe, 2 may be identical but all the others would have some characteristic inquest to that product.
Hence they are not homogenous!
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