Question

Tall Ltd. has acquired all the net assets of Blacks Ltd., with the latter going into liquidation. Both companies operate in the area of testing and manufacturing pharmaceutical products. One of the main reasons that Tall sought to acquire Blacks was that the latter company had an impressive record in developing drugs to cure some mosquito-related diseases. Blacks employed a number of scientists who were considered to be international experts in their area and at the leading edge of research in their field. Much of the recent work undertaken by these scientists was classified for accounting purposes as research, and per IAS 38 Intangible Assets was expensed by Blacks. However, in deciding what it would pay to take over Blacks, Tall had paid a sizeable amount of money for the ongoing research being undertaken by Blacks as it was expected that it would be successful eventually.
The accountant for Tall, Mr. El-Naggar, has suggested that the amount paid by Tall for this research should be shown as goodwill in the company’s statement of financial position. However, the company directors do not believe that this faithfully represents the true nature of the assets acquired in the business combination, and want to recognize an asset separately from goodwill. Mr. El-Naggar believes that this will not be in accordance with IAS 38.
Required
Provide the directors with advice on the accounting for this transaction.


$1.99
Sales0
Views191
Comments0
  • CreatedJune 09, 2015
  • Files Included
Post your question
5000