Q3

Donna is a chemist and has been working for Cure-All Ltd on the design of a new drug to cure addictions to vaping. She decided to leave her job but the management of Cure-All Ltd were worried that she might work for their main competitor. Thus, management decided to offer Donna $1 million for not working in the industry for the next three years. Donna agreed to the employment restriction and Cure-All Ltd paid her $1 million.

This is the first time that Cure-All Ltd has made such a payment and the accountant is unsure how to account for it.

Required

Label your responses a) b) c) and d)

a) Identify the main accounting policy issue(s) for Cure-All Ltd regarding the payment to Donna. (2 marks)

b) Identify two principles or rules that are relevant to the accounting policy issue. (2 marks)

c) Describe two different policies to account for the payment to Donna. You may ignore the disclosure component. Do NOT justify your policy in this part. (4 marks)