BioGen, a biotech startup, incurred the following costs during 20X5:
$50,000 on market research for a potential new drug.
$120,000 on clinical trials for Drug X, after technical feasibility and commercial viability were established.
$30,000 on training staff to use new laboratory equipment.
Under IAS 38 Intangible Assets, what amount must be capitalized as an intangible asset?
Answer options:
A.
$170,000
B.
$120,000
C.
$150,000
D.
$200,000
How to approach this question
Apply the capitalization criteria (PIRATE) to each cost. Research, market research, and training are always expensed.
Full Answer
B.$120,000✓ Correct
IAS 38 requires research costs (like market research) to be expensed. Training costs are also always expensed as the entity does not have sufficient control over the staff's future economic benefits. Only development costs incurred after technical and commercial feasibility are established (the $120,000 for Drug X) can and must be capitalized.
Common mistakes
Capitalizing training costs, assuming they are part of bringing the asset into use.
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