Question
Bossier Ltd has just acquired all the issued shares of Millus Ltd. The accounting staff at Bossier Ltd has been analyzing the assets and liabilities
Bossier Ltd has just acquired all the issued shares of Millus Ltd. The accounting staff at Bossier Ltd has been analyzing the assets and liabilities acquired in Millus Ltd. As a result of this analysis, it was found that Millus Ltd had been expensing its research outlays. Over the past 3 years, the company has expensed a total of $60,000, including $20,000 immediately before the acquisition date. One of the reasons that Bossier Ltd acquired control of Millus Ltd was its promising research findings in an area that could benefit the products being produced by Bossier Ltd. There is disagreement among the accounting staff as to how to account for the research abilities of Millus Ltd. Some of the staff argue that, since it is research, the correct accounting is to expense it, and so it has no effect on accounting for the group. Other members of the accounting staff believe that it should be recognized on consolidation, but are unsure of the accounting entries to use, and are concerned about the future effects of recognition of an asset, particularly as no tax advantage remains in relation to the asset.
Question 1: What accounting is most appropriate for these circumstances? Please advise.
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