Question

Ajax Corporation has spent $5 billion over the last three years in developing a new drug labeled BJ13. FDA approval is expected by the end of the month, at which time the drug will be available for sale. None of Ajax's competitors has a product similar to BJ13, and the medical community is anxiously awaiting the availability of this drug. Although BJ13 promises to be a "wonder drug" with huge financial success, Ajax's income statements for the last few years have shown substantial losses and Alert's balance sheet does not include product BJ13 among the assets of the business.

Explain why one of Ajax's seemingly most valuable assets apparently has been omitted from the balance sheet, and why Ajax's income statements for the past few years reported substantial losses.

Answer 1

As the gain is not certain yet.

And as per the principles of Accountancy, we can't record an gain untill is 100% certain.

Conservatism says that anticipate future losses but not future gain.

So It is omitted from the balance sheet.

Although the expense on the research of this project is included as the expenses are already made & they are more than certain to Account for which is why income statement showing losses.

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