Question 3 Part A: Daredevil Ltd. was established in September 2015 to conduct research designed to develop products which would appeal to the growing market of students. Daredevil Ltd. was attempting to develop ExamAid, a wonder drug which was expected to significantly improve short-term memory. It was anticipated that ExamAid would have mass appeal to people needing to remember a lot of information for several hours, e.g. students studying for examinations. This was confirmed using a market research company that reported extremely high demand for the potential drug. Daredevil Ltd. successfully acquired a patent for ExamAid on 1 October 2015 which restricted anyone else from using the ExamAid concept. Whilst the project is only in the research phase and at the concept level, there is no other product on the market that is similar to ExamAid. By the 30 June 2016, expenditure on salaries to develop ExamAid amounted to $2 million. Based on the market demand, Daredevil Ltd recorded the $2 million as an et. Required: Critically analyse whether the $2 million spent to develop ExamAid should be accounted for as an asset as at 30 June 2016 by applying the definition and recognition criteria from the conceptual Framework. (6.5 marks) Part B: By 30 June 2017, scientific testing costing $1 million established that ExamAid only worked for approximately 3 minutes and in a pilot trial, all students that took ExamAid failed their exams as they could not remember anything about the subject after the three minutes were over. Further discussions with scientific experts indicated no solution to overcoming the problem was apparent and the project was disbanded. Required: Applying the appropriate definition and recognition criteria from the Conceptual Framework, critically analyse how the $1 million spent on scientific testing should be accounted for, as at 30 June 2017. (You do not need to justify that cash is an asset). (5.5 marks) (Total = 6.5 + 5.5 = 12 marks) Question 3 Part A: Daredevil Ltd. was established in September 2015 to conduct research designed to develop products which would appeal to the growing market of students. Daredevil Ltd. was attempting to develop ExamAid, a wonder drug which was expected to significantly improve short-term memory. It was anticipated that ExamAid would have mass appeal to people needing to remember a lot of information for several hours, e.g. students studying for examinations. This was confirmed using a market research company that reported extremely high demand for the potential drug. Daredevil Ltd. successfully acquired a patent for ExamAid on 1 October 2015 which restricted anyone else from using the ExamAid concept. Whilst the project is only in the research phase and at the concept level, there is no other product on the market that is similar to ExamAid. By the 30 June 2016, expenditure on salaries to develop ExamAid amounted to $2 million. Based on the market demand, Daredevil Ltd recorded the $2 million as an et. Required: Critically analyse whether the $2 million spent to develop ExamAid should be accounted for as an asset as at 30 June 2016 by applying the definition and recognition criteria from the conceptual Framework. (6.5 marks) Part B: By 30 June 2017, scientific testing costing $1 million established that ExamAid only worked for approximately 3 minutes and in a pilot trial, all students that took ExamAid failed their exams as they could not remember anything about the subject after the three minutes were over. Further discussions with scientific experts indicated no solution to overcoming the problem was apparent and the project was disbanded. Required: Applying the appropriate definition and recognition criteria from the Conceptual Framework, critically analyse how the $1 million spent on scientific testing should be accounted for, as at 30 June 2017. (You do not need to justify that cash is an asset). (5.5 marks) (Total = 6.5 + 5.5 = 12 marks)
