ACCOUNTING FOR RESEARCH Tall Ltd has acquired all the net assets of Shorts 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 Ltd sought to acquire Shorts Ltd was that the latter company had an impressive record in the development of drugs for the cure of some mosquito‐related diseases. Shorts Ltd 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 as per AASB 138/IAS 38 Intangible Assets was expensed by Shorts Ltd. However, in deciding what it would pay to take over Shorts Ltd, Tall Ltd had paid a sizeable amount of money for the ongoing research being undertaken by Shorts Ltd as it was expected that it would be successful eventually. The accountant for Tall Ltd, Mr Basket, has suggested that the amount paid by Tall Ltd for this research should be shown as goodwill in the company’s statement of financial position. However, the directors of the company do not believe that this faithfully represents the true nature of the assets acquired in the business combination, and want to recognise this as an asset separately from goodwill. Mr Basket believes that this will not be in accordance with AASB 138/IAS 38. Required Provide the directors with advice on the accounting for the aforementioned transaction. CASE STUDY