Question b

Question 3 The Octopus Group, which has been growing ever since its foundation in the 1980s, operates primarily across Europe. Octopus has built an offshore wind farm with the purpose of testing the efficiency of its prototype wind turbines. Octopus has applied to the regulators for approval for the production of its new prototype but has only received permission to test the prototype wind turbine. The wind farm development will enable Octopus to test the reliability of the new wind turbines, which should assist in developing more efficient and cost-effective offshore wind turbines. As yet, however, there has not been any commercial production of the prototype wind turbines as there is still some slight doubt over the wind turbine's durability in extreme weather conditions. The renewable energy generated during the testing phase of the wind turbines is sold to the national regulator of electricity. There is sufficient resource to complete the wind farm project, but the energy income has not been included in management's resource planning. (a) Based on the information from the above, advise the directors of Octopus how the expenditure on the wind farm and the income from the sale of energy should be the financial statements, according to international financial reporting standards. [8 marks] (b) Explain why do standard setters consider it necessary to distinguish between internally generated goodwill and goodwill from business combinations, and critically discuss whether current accounting treatment of goodwill under IAS 38 generates decision-useful information, citing empirical research evidence where appropriate. [22 marks]