ACCA · Question 25 · Accounting for Transactions
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 should the $200,000 spent before 1 July 20X8 be treated in the financial statements?
Answer options:
Capitalized as part of the intangible asset.
Recognized as an expense in the Statement of Profit or Loss.
Deferred in Other Comprehensive Income until the project is complete.
Capitalized as Property, Plant and Equipment.
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