Intangible Assets

BioHealth Pharma has spent $500,000 researching a new vaccine and a further $800,000 on the development phase. The development phase meets all the criteria for capitalization under IAS 38 Intangible Assets. How should these costs be treated in the financial statements?

SECTION B - CASE 1: AeroTech Drones AeroTech Drones Co manufactures specialized agricultural drones. The year-end is 31 December 20X5. During 20X5, AeroTech incurred the following costs on a new drone project ('AgriFly'): - 1 Jan to 30 Jun: $400,000 on initial research and feasibility studies. - 1 Jul to 31 Oct: $600,000 on development. Commercial viability and technical feasibility were established on 1 July. - 1 Nov to 31 Dec: $200,000 on final testing and production setup. The AgriFly drone was ready for use on 31 December 20X5. Under IAS 38 Intangible Assets, what amount should be capitalized as an intangible asset for the AgriFly project in the year ended 31 December 20X5?

SECTION B - CASE 1: AeroTech Drones AeroTech Drones Co manufactures specialized agricultural drones. The year-end is 31 December 20X5. During 20X5, AeroTech incurred the following costs on a new drone project ('AgriFly'): - 1 Jan to 30 Jun: $400,000 on initial research and feasibility studies. - 1 Jul to 31 Oct: $600,000 on development. Commercial viability and technical feasibility were established on 1 July. - 1 Nov to 31 Dec: $200,000 on final testing and production setup. The AgriFly drone was ready for use on 31 December 20X5. Assuming the capitalized development costs have an estimated useful life of 4 years, what is the amortization charge for the year ended 31 December 20X5?

**Section A** BioGen, a biotech startup, incurred the following costs during 20X5: 1. $50,000 on market research for a potential new drug. 2. $120,000 on clinical trials for Drug X, after technical feasibility and commercial viability were established. 3. $30,000 on training staff to use new laboratory equipment. Under IAS 38 Intangible Assets, what amount must be capitalized as an intangible asset?

**Section A** NeuroTech is developing a new neural-interface device. During the year ended 31 December 20X5, it incurred the following costs: - $200,000 on initial feasibility studies (Jan-Mar) - $500,000 on developing a working prototype (Apr-Aug) - $300,000 on final testing and regulatory approval (Sep-Dec) Management confirmed the project met all capitalization criteria under IAS 38 on 1 September 20X5. How much should be capitalized as an intangible asset for the year ended 31 December 20X5?

**Section B - Case 2: BioGenix** *Scenario:* BioGenix is a biotechnology firm developing a new gene therapy, 'GeneX'. During the year ended 31 December 20X5, BioGenix incurred the following costs: - $2,000,000 on the research phase (Jan-Jun). - $3,000,000 on the development phase (Jul-Dec), incurred evenly over the 6 months. BioGenix management confirmed that the project met all IAS 38 capitalization criteria on 1 October 20X5. BioGenix also holds a patent for a different drug. On 1 January 20X5, BioGenix licensed this patent to PharmaCo. PharmaCo paid an upfront, non-refundable fee of $5,000,000 for the right to use the patent for 5 years. BioGenix has no further performance obligations. The contract also includes a $2,000,000 milestone payment if PharmaCo achieves $50m in sales in 20X5. By 31 December 20X5, PharmaCo's sales were $30m, and BioGenix determined it is highly probable the milestone will not be met. Finally, BioGenix has a Cash Generating Unit (CGU) that was impairment tested. Carrying amounts: Goodwill $1m, Patent $4m, Equipment $5m. Recoverable amount of the CGU is $7m. *Question:* How much of the 'GeneX' costs should be capitalized as an intangible asset for the year ended 31 December 20X5?

**Section B - Case 2: BioGenix** *Scenario:* BioGenix is a biotechnology firm developing a new gene therapy, 'GeneX'. During the year ended 31 December 20X5, BioGenix incurred the following costs: - $2,000,000 on the research phase (Jan-Jun). - $3,000,000 on the development phase (Jul-Dec), incurred evenly over the 6 months. BioGenix management confirmed that the project met all IAS 38 capitalization criteria on 1 October 20X5. BioGenix also holds a patent for a different drug. On 1 January 20X5, BioGenix licensed this patent to PharmaCo. PharmaCo paid an upfront, non-refundable fee of $5,000,000 for the right to use the patent for 5 years. BioGenix has no further performance obligations. The contract also includes a $2,000,000 milestone payment if PharmaCo achieves $50m in sales in 20X5. By 31 December 20X5, PharmaCo's sales were $30m, and BioGenix determined it is highly probable the milestone will not be met. Finally, BioGenix has a Cash Generating Unit (CGU) that was impairment tested. Carrying amounts: Goodwill $1m, Patent $4m, Equipment $5m. Recoverable amount of the CGU is $7m. *Question:* What is the total amount related to 'GeneX' that should be expensed to profit or loss for the year ended 31 December 20X5?