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.