GSK is a large pharmaceutical business involved in the research and development of viable new drugs. It commenced initial investigation into the viability of a new drug on 1 February 20X5 at a cost of $40,000 per month. On 1 August 20X5 GSK were able to demonstrate the commercial viability of the new drug and intend to sell it on the open market once fully complete.

Costs subsequent to 1 August 20X5 remained at $40,000 per month. At 31 December 20X5, GSK’s reporting date, the drug was not yet complete but it is believed that by mid-20X6 the drug will be available for sale.

The finance director is confident of the success of the drug’s sales that he wishes to revalue the intangible at the reporting date, using a discounted future cash flow model to establish the fair value.

Explain the treatment of the above costs in GSK’s financial statements for the year-ended 31

Answer rating: 100% (QA)

Step 1 The costs incurred by GSK for investigating the viability of a new drug before 1 August 20X5 ... View the full answer