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Discuss whether Mr Duncan proposal is a sound idea

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Question - Chemico Ltd's research and development section has come up with an idea for a project on using cane toad poison for medicinal purposes. The board of directors of Chemico Ltd believes that the project has promise and could lead to future profits for the firm. The project is, however, very expensive and needs approval from the board.The company's chief financial officer, Mr Duncan, has expressed concern that the profits of the firm have not been strong in recent years and he does not want to see research and development costs charged as expenses to the profit or loss. Mr Duncan has proposed that Chemico Ltd should hire an outside firm, Reed Ltd, to undertake the work and obtain the patent. Chemico Ltd could then acquire the patent from Reed Ltd, with no effect on the profit or loss of Chemico Ltd.

Required - Discuss whether Mr Duncan's proposal is a sound idea, particularly in relation to the effect on the profit or loss of Chemico Ltd in accordance with AASB 138 "Intangible Assets".

Reference no: EM132910003

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