CERTYNEX IFRS ACADEMY

The Alto group obtains control of Brio in a business combination. Brio is carrying out a research and development project on a new material; it has always expensed this expenditure and the project is not on its balance sheet. The project is protected by patent filings and an expert estimates its fair value at 4,000,000 at the acquisition date. Alto's finance director proposes to subsume it in goodwill, since it does not appear on Brio's balance sheet. Which treatment should be used in Alto's consolidated financial statements?

Subsume it in goodwill, since Brio has always expensed this expenditure.

Recognise it separately from goodwill, at its fair value at the acquisition date.

Recognise it at the cumulative amount of expenditure incurred by Brio on the project.

Recognise it only once Alto has demonstrated the criteria for the development phase.