Research and Development-Financial Reporting

question 137

Essay

Research and development-financial reporting
Alert Industries has spent $5 billion over the last three years in developing a new drug labeled BJ13.FDA approval is expected by the end of the month,at which time the drug will be available for sale.None of Alert's competitors has a product similar to BJ13,and the medical community is anxiously awaiting availability of this drug.Although BJ13 promises to be a "wonder drug" with huge financial success,Alert's income statements for the last few years have shown substantial losses and Alert's balance sheet does not include product BJ13 among the assets of the business.
Explain why one of Alert's seemingly most valuable assets apparently has been omitted from the balance sheet,and why Alert's income statements for the past few years reported substantial losses.

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Definitions:

Overdevelopment

Excessive growth or development beyond what is normal or expected.

Quadri-

A prefix meaning four, used in forming nouns or adjectives that denote four parts, four times, or four dimensions.

Four

The number following three and preceding five, represented in Roman numerals as IV and in Arabic numerals as 4.

Milli-

A prefix in the metric system denoting one thousandth (1/1000) of the unit it precedes.