(Interpreting a write-down, LO 4, 6, 7, 9) In fiscal 2004 Redlax Technologies Inc. (Redlax) purchased a company that owned a technology that Redlax believed was extremely valuable for its future success. Redlax paid $900,000,000 for the company. Among the assets that Redlax obtained by purchasing the company were “technologies under development” that Redlax estimated to have a fair value of $350,000,000.

This means that Redlax estimated that the technologies under development would generate revenues of at least $350,000,000.

Redlax decided to expense the technologies under development in full in fiscal 2004.

As an alternative, Redlax could have treated the technologies under development as an asset and amortized them over a period as long as 40 years. Redlax is a public company that is traded on a Canadian stock exchange.

Required:

Explain the effect on the current year’s financial statements, as well as the implications for future years’ financial statements, of the write-down. Also, explain how users of the financial statements would be affected by how Redlax accounted for the acquired technologies and how the financial statements should be interpreted as a result of how the acquired technologies were accounted for. Why do you think Redlax chose to account for the technologies in the way it did?