Entity A is pioneering a new process for the production of a certain type of chemical. Entity A will…

Incidental operations

Entity A is pioneering a new process for the production of a certain type of chemical. Entity A will be able to patent the new production process. During the development phase, A is selling quantities of the chemical that are produced as a by-product of the development activities that are taking place. The expenditure incurred comprises labour, raw materials, assembly costs, costs of equipment and professional fees.

The revenues and costs associated with the production and sale of the chemical are accounted for in profit or loss for the period, while the development costs that meet the strict recognition criteria of IAS 38 are recognised as an intangible asset. Development costs that fail the IAS 38 recognition test are also expensed.

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