ACCA SBR ^UK Syllabus C. Reporting The Financial Performance Of A Range Of Entities - Intangible assets other than goodwill - Past Papers ^{8 / 24}

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

Stakes in development projects
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.

Required:
(ii) Discuss the required treatment under FRS 102 for the stakes in the development projects for both the years ended 31 August 20X7 and 20X8 assuming that the recognition criteria for an intangible asset were met. Your answer should also briefly consider the implications if the recognition criteria were not met. (5 marks)

(iii) Discuss the key differences between International Financial Reporting Standards and FRS 102 with regards to the recognition of intangible assets. (4 marks)

The Dabey Group is a UK group of companies, which owns and operates a social media site on which the public can post material relating to any particular topic. The cost of setting up the site was $3 million. The company generates revenue by selling advertising space on the site. The domain name is protected legally through registration with the national authority.

Dabey has developed good customer relationships with the advertisers and expects them to continue to trade with Dabey. There are no contracts with those advertising customers. Dabey also uses the site to sell transferable domain names which it has purchased from the national regulator. Dabey owns the names and allows purchasers of the names to use the name for a period of five years before it reverts back to Dabey. Dabey expects to achieve an 80% margin on the sale of the domain names.

Required:
(i) Advise Dabey on whether the above items should be accounted for as intangible assets under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. Your answer should discuss the key differences between accounting for the recognition of intangible assets other than goodwill under IAS 38 Intangible Assets and FRS 102. (8 marks)