Care Innovations, a pharmaceutical company, has invested heavily in developing a new proprietary drug formula. While still in the clinical trial phase, the initial results are highly promising, and the company has secured significant future funding contingent on successful completion of trials. Due to its highly innovative nature, there is no active market for valuing such a formula at this stage. The company also has a highly experienced and stable research team, cultivated over years, which is considered invaluable to its success. According to the IASB's Conceptual Framework for Financial Reporting and relevant International Financial Reporting Standards (IFRS), which of the following statements correctly describes the accounting treatment of these items?

Question

Accepted Answer

The new drug formula should be expensed as research expenditure until its technical feasibility and probable future economic benefits can be reliably demonstrated and measured. The research team should not be recognised as an asset due to lack of control and reliable measurement.

Answer

Neither the new drug formula nor the research team should be recognised as assets because their fair values cannot be reliably determined in an active market, thus failing the faithful representation criterion.

Answer

Both the new drug formula and the research team should be recognised as intangible assets, as they are crucial for the company's future success, aligning with the principle of relevance.

Answer

The new drug formula should be recognised as an intangible asset and amortised over its expected commercial life, as its future economic benefits are probable and the costs are reliably measurable. The research team should be recognised as an intangible asset due to its invaluable contribution.

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