Question

We just purchased some labe equipment that will be used for our current research projec, but we'll also be able to use the equipment for future projects.

Just hired a new chief scientist to lead the gene therapy project, but we had to pay top dollar, his salary is over $400,000.

Our outside lawyers just sent us an invoice for $1.5M to help us file the patent on our new cancer drug.

R&D Lab testing cost (all related to lab personnel) in March was over $2.5M much more than we anticipated.

The cost of the new gene splicer was a shocker, we paid over $10M for this device, and it is only useful for this project.

How should this be reported and classified in the financial statements?

Answer 1

As per IAS 38,

• Charge all research cost to expense.
• Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. This means that the entity must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits

In the given scenario, the above costs mentioned are development costs and have to be capitalized as it is related to development of the new drug/therapy project which shall be the new intangible asset for th firm,