GeneTech Ltd is a biological research company that is developing gene technology in the hope of finding a vaccine for skin cancer. During the last financial year, GeneTech Ltd spent $1.2 million on research. The scientists involved in the project believe they may be on the right track with the research, although many other companies are claiming the same thing and as yet no one has patented a vaccine.

Required

In groups of three of four, discuss the options under IAS 38/AASB 138 Intangible Assets for the treatment of the $1.2 million. What impact will each of these options have on the company’s profit? Prepare a one page letter to the managing director of GeneTech Ltd advising her of your preferred treatment for the research and development costs.