Accounting for Healthcare
AppliedScientific Method pharmaceutical company is carrying out research ona drug that they expect to be marketable in the future. The study isscheduled to take three years. The company wishes to involve a CPAholder to account for the research. The essay describes the bestfinancial approach to apply with reasons.
Two probableapproaches can applied in accounting for the company. The firstapproach will entail recording of events as they take place and theother likely approach is matching the current expenses with therevenues expected in the future. Either of the approaches can be usedin accounting for the firm’s drug. Recording the 10.5 millionshillings employed in the research as a loss will mean that thecompany is using revenues that it do not have. In a real sense, themoney is being invested. On the other hand, if the expenses arematched with future revenues, then the 10.5 million shilling will beconsidered an investment and the firm will have neither profits norlosses recorded at the end of the year. Thus, the most appropriateapproach is matching the expenses with the future revenue. It is thebest idea, as it will consider the research as an investment andthere will be no losses depicted in the balance sheet.
There are two possible accounting treatment for costs. First, isexpensing the annual cost of the research and the secondly istreating the research as a capital investment to be recovered fromthe sales made in the future. The most appropriate treatment of theresearch is taking it as capital investments to be retrieved from thefuture sales (Liapis & Thalassinos, 2013). The latter is the mostappropriate as the money used in the research can be recovered laterin from the sales of the drug. In conclusion, treatment is betterunderstood, and it makes more sense to the customers than that ofexpensing the annual cost of the research.
Liapis, K., & Thalassinos, E. (2013). A Comparative Analysisfor the Accounting Reporting of “Employee Benefits” between IFRSand other Accounting Standards: A Case Study for the Biggest ListedEntities in Greece. International Journal of Economics &Business Administration (IJEBA), 1(1), 91-116.
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