Drakensberg Pharmaceuticals Ltd is leading pharmaceutical company listed on the

Johannesburg Stock Exchange. The company has a financial yearend of $31$

December. In $2023,$ the company decided to invest in research and development

$($R&D$)$ for a potential breakthrough cancer drug. The research commenced in February

$2023,$ with an initial budget of R $2$ million.

The company hired Life Sciences Lab $($Pty$)$ Ltd$,$ a specialist bio$-$tech research agency,

on a contract worth R $1$ million. The contracted research was completed and presented

to the company's board on $1$ November $2023.$ The research shows potential but by $31$

December $2023,$ no remarkable breakthroughs have been documented yet.

Drakensberg Pharmaceuticals also directly incurred R$500000$ in costs for the

research project, which included staff costs, purchase of specialized equipment, and

raw materials.

Ignore VAT and taxation for this question.

REQUIRED:

$4\mathrm{.}1$ Discuss, in terms of The Conceptual Framework for Financial Reporting, how

 

 the payment made to Life Sciences Lab $($Pty$)$ Ltd$,$ as well as the direct costs  

 

incurred for the R&D project, should be accounted for in the annual financial

statements of Drakensberg Pharmaceuticals Ltd for the financial year ending

on $31$ December $2023.$

In your response, consider the following aspects:

Definitions of relevant financial statement elements: Assets

Recognition criteria & Measurement considerations: Assets

Impacts on the financial statements if the payments were treated differently.

Remember to provide adequate reasoning for your answers, considering

the timelines and amounts specified.

$(16$ marks $4\mathrm{.}2$ Assume no entries have been posted to record for these transactions. Prepare

the general journal entries to account for the transactions in the year ending on

$31$ December $2023$ for Drakensberg Pharmaceuticals Ltd$.$ Provide journal

dates and narratives.

Answer rating: 100% (QA)

41 Discussion According to the Conceptual Framework for Financial Reporting the payment made to Life Sciences Lab Pty Ltd and the direct costs incurred for the RD project should be accounted for in th... View the full answer