Question 1

SECTION B

CASE SCENARIO: BioHarvest Ltd is an agricultural biotech firm. At 31 December 20X8, BioHarvest has growing crops with a historical cost of $100,000. The fair value of these crops is $150,000, and estimated costs to sell are $10,000. During the year, BioHarvest harvested seeds. At the point of harvest, the seeds had a fair value of $50,000 and costs to sell of $5,000. On 1 January 20X8, BioHarvest signed a contract granting a customer a 3-year right to access its patented seed technology, receiving $300,000 upfront. BioHarvest also spent $500,000 developing a new drought-resistant seed variant; $200,000 was spent before the project met the IAS 38 capitalization criteria on 1 July 20X8, and $300,000 was spent after.

QUESTION: How much revenue should BioHarvest recognize in the year ended 31 December 20X8 for the seed technology license?

Accepted Answer

Identify if the license is a 'right to use' (point in time) or 'right to access' (over time). The scenario states it's a right to access. Divide the total fee by the contract term.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Recognizing the full $300,000 upfront, treating it as a 'right to use' license.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 3

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