Question: Lynx Ltd has just acquired all the issued shares of

Lynx Ltd. has just acquired all the issued shares of Indus Ltd. The accounting staff at Lynx has been analyzing the assets and liabilities acquired in Indus. As a result of this analysis, it was found that Indus had been expensing its research outlays in accordance with IAS 38 Intangible Assets. Over the past three years, the company has expensed a total of $20,000, including $8,000 immediately before the acquisition date. One of the reasons that
Lynx acquired control of Indus was its promising research findings in an area that could benefit the products being produced by Lynx.
There is disagreement among the accounting staff as to how to account for the research abilities of Indus. Some of the staff argue that, since it is research, the correct accounting is to expense it, and so it has no effect on accounting for the group. Other members of the accounting staff believe that it should be recognized on consolidation, but are unsure of the accounting adjustments to use, and are concerned about the future effects of recognition of an asset, particularly as no tax advantage remains in relation to the asset.
Advise the group accountant of Lynx on what accounting is most appropriate for these circumstances.

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  • CreatedJune 09, 2015
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