Iasb Question

TOPIC 1 IASB

ABC Ltd, a medical research entity, has discovered a cure for diabetes. ABC Ltd is protecting the drug’s formula by keeping it secure in the company vault, rather than patenting it. ABC Ltd will shortly start discussions with vitally interested pharmaceutical companies about producing the drug for commercial sale. Being the first of its kind and, therefore, unique, ABC Ltd has no idea about the formula’s value. Cost incurred to date in developing the formula is impossible to identify, given that it was discovered as a by-product of another research project.

Required:

Outline whether ABC Ltd can account for the formula as an ‘asset’ in accordance with the IASB framework.

It is prescribed in IASB that the three key elements of asset is “Resource controlled by the entity” “As a result of past events” and “Expected that future economic benefits will flow to the entity”, and the recognition criteria of asset is “Probable that the future economic benefits will flow” and “Cost or value can be measured reliably”.

When it comes to ABC Ltd’s example:

Firstly, the resource cannot be controlled by the entity. ABC Ltd hasn’t patent the formula, thus if the formula is stolen, it may be pirated and cannot be controlled by ABC Ltd any more.

Secondly, ABC Ltd has developed this drug which could cure diabetes and kept the formula secure in the company vault so it is a result of past events.

Thirdly, ABC Ltd will shortly start discussions with vitally interested pharmaceutical companies about producing the drug for commercial sale. It may bring ABC Ltd economic benefits. So it is expected that future economic benefits will flow to the entity.

It is probable that the future economic benefits will flow. Because ABC Ltd will shortly start discussions with vitally interested pharmaceutical companies about producing the drug for commercial sale. It may bring ABC Ltd economic benefits.

However, ABC Ltd has no idea about the...