Effect on Managerial Decisions

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and Financial Reporting
Name of the Student
Name of the University
Author Note

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ACCOUNTING AND FINANCIAL REPORTING
Table of Contents
Introduction..................................................................................................................................2
Journal Entries for PharmaTech Ltd.’s Project Costs..................................................................2
Effect on Managerial Decisions...................................................................................................3
New Standard for Pharmaceutical Industry.................................................................................4
Conclusion and Recommendations..............................................................................................5
References....................................................................................................................................6

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ACCOUNTING AND FINANCIAL REPORTING
Introduction
AASB 138 deals with the treatment of intangible assets which are not dealt with by any
other existing standard. It suggests that an entity should recognise an intangible asset only if
certain selection criteria are met. Paragraph 126 of AASB suggests that an entity should disclose
the amount recognised as research and development (R&D) expenditure during a particular
period. Any activity which is directly attributable to R&D should be included in the expenditure
incurred by an entity. Some of the costs which are a part of the directly attributable costs include
cost of materials and services, employee benefits, fees paid to register a legal right and
amortisation of patents used to generate a particular asset (Aasb 138, p66).
In case of PharmaTech, the costs incurred up to 30 June 2019 are a part of the overhead
costs incurred to ensure that the product is fit for the purpose of medical usage. As per the
criteria of AASB 138, this cost cannot be attributed directly to the costs involved in the
manufacture of the product. Hence, it can be said that this is not included in the costs generated
to produce the asset. The $1m incurred as on July 2020, can however be classified as a part of
the costs incurred in registering the legal rights of the product. As the product has been
successfully approved for usage after the completion of the trials, these costs can be included as
a part of the cost of the asset. The costs incurred up to 30 June 2021 can be classified as a part of
the production costs incurred in producing the product. Hence, these can be added to the cost of
the product produced by the entity.
Journal Entries for PharmaTech Ltd.’s Project Costs
Date Particulars Amount Amount
30.6.201 Clinical Trials 2000000