Question

In fiscal 2017, Plumas Technologies Inc. (Plumas) purchased a company that owned a technology Plumas believed was extremely valuable for its future success. Plumas paid $900,000,000 for the company.
Among the assets Plumas obtained by purchasing the company was "technologies under development," which Plumas estimated to have a fair value of $350,000,000. This means that Plumas estimated that the technologies under development would generate net revenues of at least $350,000,000.
Plumas decided to expense the technologies under development in full in fiscal 2017. As an alternative, Plumas could have treated the technologies under development as an asset and amortized them over 10 years. Plumas is a public company that is traded on a Canadian stock exchange.

Required:
Explain the effect on the current year's financial statements, as well as the implications for future years' financial statements, of fully expensing the technologies under development. Also, explain how users of the financial statements would be affected by how Plumas accounted for the acquired technologies and how the financial statements should be interpreted as a result of how the acquired technologies were accounted for. Why do you think Plumas chose to account for the technologies in the way it did?



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  • CreatedFebruary 26, 2015
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