Case Study 6.

Solution of the Issues:

In this case PA Group is the pharmaceutical industry that include to Industries
where few companies capitalize internally generated development costs and most
companies charge them to income as incurred. As an internally generated intangible
asset, development costs are required to satisfy additional criteria set out by IAS 38
apart from the definition and recognition:

Development Cost can be capitalized and recognized as an intangible asset if it

satisfies the conditions of technical feasibility, intention to complete the project,
availability of adequate resources for the project, demonstrate the existence of market
for the output to be generated by this intangible asset.

PA group included a $5 million expenditure in the inventory. this $5 million was

previously written off in the income statement. PA Group should therefore reverse the
capitalisation