Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Fair value application in intangible assets
- This topic has 1 reply, 2 voices, and was last updated 4 years ago by
P2-D2.
- AuthorPosts
- December 5, 2020 at 10:59 pm #597797
Hello and good day sir,
In the question below which you had walked us through. You had said that we couldn’t revalue the asset because of the absence of an active market. My question is, what about level 3 of the hierarchical fair value approach where an example of discounted cash flow is given sir?
Thanks very much
Example 3 – Intangibles (3)GSK is a large pharmaceutical business involved in the research and development of viable new drugs. It commenced initial investigation into the viability of a new drug on 1 February 20X5 at a cost of $40,000 per month. On 1 August 20X5 GSK were able to demonstrate the commercial viability of the new drug and intend to sell it on the open market once fully complete.Costs subsequent to 1 August 20X5 remained at $40,000 per month. At 31 December 20X5, GSK’s reporting date, the drug was not yet complete but it is believed that by mid-20X6 the drug will be available for sale.
The finance director is confident of the success of the drug’s sales that he wishes to revalue the intangible at the reporting date, using a discounted future cash flow model to establish the fair value.
December 8, 2020 at 9:32 pm #598643Hi,
How would you be able to estimate the future cash flows with some degree of certainty? You wouldn’t and so we couldn’t revalue, plus there is not active market or identical item.
Thanks
- AuthorPosts
- You must be logged in to reply to this topic.