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IAS 38 Recognition Criteria and Financial Asset Recognition

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › IAS 38 Recognition Criteria and Financial Asset Recognition

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by Stephen Widberg.
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  • October 25, 2021 at 12:01 pm #639058
    KeeganRebello
    Member
    • Topics: 5
    • Replies: 1
    • ☆

    My doubt is regarding the Implications of recognition requirements not being met for an Intangible Asset in the case of Q33 – Skizer

    The topic asked in the question was IAS 38 – Intangible Assets. Following is an extract of the question for understanding –

    “Skizer is a pharmaceutical company which develops new products with other
    pharmaceutical companies that have the appropriate production facilities.

    When Skizer acquires a stake in a development project, it makes an initial payment to
    the other pharmaceutical company. It then makes a series of further stage payments
    until the product development is complete and it has been approved by the
    authorities. In the financial statements for the year ended 31 August 20X7, Skizer has
    treated the different stakes in the development projects as separate intangible assets
    because of the anticipated future economic benefits related to Skizer’s ownership of
    the product rights. However, in the year to 31 August 20X8, the directors of Skizer
    decided that all such intangible assets were to be expensed as research and
    development costs as they were unsure as to whether the payments should have
    been initially recognised as intangible assets. This write off was to be treated as a
    change in an accounting estimate. ”

    One of the sub Question asks for the implications if the conditions of IAS 38 are met and the Implications if the conditions for IAS 38 are not met for both years 20×7 and 20×8.

    My query was – Where the conditions to IAS 38 are not met- Can the share in the development project be considered a Financial Asset ? – The answer makes no note of the treatment in 20×7

    October 26, 2021 at 7:05 am #639110
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3411
    • ☆☆☆☆☆

    If development cost criteria are not met expense as research.

    Does not meet definition of a financial asset – no contractual right to receive cash and not an equity investment.

    🙂

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