Novel Ideas Ltd is a company that scouts for innovative designs, products and ideas to turn into
lucrative ventures.
One of these ventures included the purchase of a patent design of a light bulb for R150 000 from
Design Ltd, invented by a young student living in an impoverished area in the Western Cape.
Many high school students living in one-roomed households, found studying late at night to be a
problem. Switching on the light to study would result in disturbing the whole household.
The student invented a lightbulb made out of plastic, that individuals with a similar situation at
home can use to study without disturbing their family.
Novel Ideas Ltd purchased the patent from Design Ltd, for R150 000. The patent gives Novel Ideas
Ltd the sole right to design and manufacture these light bulbs. The company has orders from
educational institutions across the country and has also partnered with local businesses, who as
part of their social responsibility will buy and funnel these bulbs to students in need. The
estimated sales within the first year based on confirmed orders are 500 000 units, at a satisfactory
profit margin.
Q.5.1 Discuss in terms of the Conceptual Framework for financial reporting, whether
the patent can be recognised as an asset in the financial statements of Novel
Ideas Ltd for the year ended 31 December 2020.
Your answer must comply with the requirements of the International Financial
Reporting Standards (IFRS).

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