Explain how R&D costs would be reported under IFRS.
Leonardo Corporation’s R&D department found an idea for a revolutionary product that would
be very profitable for the company. However, this project is very expensive and therefore,
necessitates the approval of the company’s controller, Kevin Ross.
Kevin recognizes that company profits have been down lately and is hesitant to approve a project
that will incur significant expenses that cannot be capitalized due to IFRS requirements. He
knows that if the company hires an outside firm to do the work and obtain a patent for the
process, his company can then purchase the patent from the outside firm and record the
expenditure as an asset. Furthermore, Kevin knows that his company’s own R&D department is
first-rate, and he is confident they can do the work well.
Answer the following questions:
1. Why does IFRS make a distinction between internally created intangibles and purchased
2. Explain how R&D costs would be reported under IFRS.
3. What are the ethical issues involved in this case?
4. What should Kevin do?
each question answer max 2 or 3 paragraphs. make sure you don’t paraphrase outside work and copy paste it here. no sources needed. simple English and easy to understand