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Klancet produces and sells its range of drugs through three separate divisions. In addition, it has two laboratories which carry out research and development activities. In the first laboratory, the research and development activity is funded internally and centrally for each of the three divisions. It does not carry out research and development activities for other entities. Each of the three divisions is given a budget allocation which it uses to purchase research and development activities from the laboratory. The laboratory is directly accountable to the division heads for this expenditure. The second laboratory performs contract investigation activities for other laboratories and pharmaceutical companies. This laboratory earns 75% of its revenues from external customers and these external revenues represent 18% of the organisation's total revenues. The performance of the second laboratory's activities and of the three separate divisions is regularly reviewed by the chief operating decision maker (CODM). In addition to the heads of divisions, there is a head of the second laboratory. The head of the second laboratory is directly accountable to the CODM and they discuss the operating activities, allocation of resources and financial results of the laboratory.

 

Advise the managing director, with reference to IFRS 8 Operating Segments, whether the research and development laboratories should be reported as two separate segments. (6 marks)

Requirements:

Advise the managing director, with reference to IFRS 8 Operating Segments, whether the research and development laboratories should be reported as two separate segments. (6 marks)

Marks: 6

Answers submitted

Created by Ref Marking Action
Kawsar Ahmed's picture
Kawsar Ahmed
03/06/2021 - 07:33

10251
6