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Chemclean trades in the chemical industry. The entity has development and production operations in various countries. It has entered into an agreement with Jomaster under which Chemclean will license Jomaster’s know-how and technology to manufacture a chemical compound, Volut. The know-how and technology has a fair value of $4 million. Chemclean cannot use the know-how and technology for manufacturing any other compound than Volut. Chemclean has not concluded that economic benefits are likely to flow from this compound but will use Jomaster’s technology for a period of three years. Chemclean will have to keep updating the technology in accordance with Jomaster’s requirements. The agreement stipulates that Chemclean will make a non-refundable payment of $4 million to Jomaster for access to the technology.
Additionally, Jomaster will also receive a 10% royalty from sales of the chemical compound.
 

Additionally, Chemclean is interested in another compound, Yacton, which is being developed by Jomaster. The compound is in the second phase of development. The intellectual property of compound Yacton has been put into a newly formed shell company, Conew, which has no employees. The compound is the only asset of Conew. Chemclean is intending to acquire a 65% interest in Conew, which will give it control over the entity and the compound. Chemclean will provide the necessary resources to develop the compound.

Requirements:

Discuss how  the compound Volut should be accounted for in the financial statements of Chem Clean.

Discuss how the right to receive royalty from sales should be recorded by Chem Clean.

Marks: 6

Discuss how Chem Clean should treat Yacton.

Marks: 5

Answers submitted

Created by Ref Marking Action
Kawsar Ahmed's picture
Kawsar Ahmed
04/10/2021 - 04:32

10273
5
Kawsar Ahmed's picture
Kawsar Ahmed
04/10/2021 - 04:32

10271
6