Accounting Standards and Theory

Question: Discuss about theAccounting Standards and Theory. Answer: Introduction The global aqua culture production is increasing on continuous basis and with this increase comes the need to sustainably develop the aqua culture. For this nutrition and feeding plays a crucial role. For developing sustainable feeding and alternative ways which can substitute fish based feeding, a great deal of research and development is required(James, 2009). This study includes the description of RD activities conducted by BSF Ltd to this line and the benefits of sustainable development of aqua feed. The company has find substitute for fish based feed with plant based feed and bacteria based feed. The plant based and bacteria based feeding have their own advantages and disadvantages that would be discussed in this study(Tibbetts, 2015). Research and development has become useful for each type of business unit. It brings various advantages for the business till long term. The study also emphasis on the accounting procedure used for treating Research and development and why it has become important for the companies to take RD activities. Certain conditions are required to be fulfilled for patent valuation and allocating the cost of RD. A brief detail about fair market value and CSIRO grant is also stated in the further study. National and international bodies are also supporting the companies engaged in RD activities by giving grants and subsidies to them. The value of research conducted by the company to the society and environment are both positive and negative. Discuss the Nature of the Research Being Done by BSF Ltd and its Value to the Society Bio-sustainable Feeds (BSF) Ltd do researches in the field of sustainable aqua culture feed. In the sustainable development of aqua culture, nutrition and feeding plays an important role. For high value export markets, the trend in agriculture export market is to emphasize on unsustainable production of species. Today, the agriculture industry is facing a biggest challenge of cost effective and sustainable fish feed. And to combat this challenge, BSF Ltd is doing various type of research in this field. (Greenpeace, 2016)For global food security aqua culture is very much essential and for sustainable expansion of the aqua industries it is necessary to understand the basis health and environmental interactions of farmed fish. Realizing this need and importance, BSF Ltd is working towards this. These types of researches helps the society and environmentalist to see the benefits and effects of the new methods and if they can be employed to develop sustainable aqua culture feed.(European Maritime Day, 2016) Its research on a plant based feed including corn, soya-bean, sunflower, etc. does not resulted into successful research. This research does not bring any good value for the society as the concept of using plant based feed is not nutritional. Plant based feed can be substitute for fishmeal if we reduce the anti-nutritional factors from it. To meet the needs of the user around the globe and to substitute for high price of fishmeal, sustainable aqua feed researches help the society to a great extent.(Aquafeed.com , 2014).BSF Ltd is continuously working towards developing alternative ways of fish feeding. For their constant efforts, the federal government of Australia is also encouraging it by giving it grants. After plant based feeding the company is focusing on use of bacteria for producing fish feed. It is doing sincere efforts to this side and aims at using sugarcane residue, methane gas, etc. from the sewage. This research will be of good value for the society as on one side it is using waste residue from the surroundings which is bio degradable and on the other side it will not have any anti-nutritional factor that cause harm. Discuss the Problems with the Early Research done by BSF Ltd BSF Ltd is constantly engaged in the field of research from last two decades. It works specifically towards the sustainable aqua culture feed. Processing towards developing substitutes for fish meal it research for replacing plant based feed against fish based feed.(Europian Commission , 2015) Many problems have aroused to this research. As the plant base feed, at the place of solving the problem faced accusations from the environmentalist. According to them, it increases the risk of malnutrition and starvation. It does benefits the rich but it is not safe for poor. Increase in stickiness of digested substance in the intestine and inclusion of nutrients caused anti- nutritional effects because it makes these substances unavailable for digestion purpose. (Kumar Barman, 2012)But when we talk about fish meal, its most popular alternative available is soybean meal. Due to the above anti-nutritional factor the use of soybean meal is restricted for aqua feed. The another issue was that the conversion rate from a lower trophic level to a higher trophic level was high in plant based feed as compared to fish based feed was higher. For fish based conversion 10 kg of fish feed is required but for plant based conversion 30 kg of plant wet feed is required. Also during this process of conversion of low value fish into high value fish, many fishes died. It also doubled the growing times of the fish and the mature fish from plant based feed were smaller as compared to fish based feed. It can be said that the fishes were only 60% of the weight of fish based feed grown fishes. This research of BSF Ltd also face a loss of $120 million due to the reason that the high value piscavorian fish failed to blossom. (Hassan, 2016) The main reason for plant based feed is that they are widely available and at cheaper prices. In aqua feeds, fishmeal can be replaced by various plants which contain good protein ingredients. But plants lack in some amino acids so in their inception form plants are restricted to be used in aqua feed. The environmentalist said that using human- quality food crops for the purpose of growing luxury fishes is a bad practice and cannot be better than using low value fish into growing luxury fishes.(Intrexon Corporation; Darling Ingredients Inc., 2016). Due to these long series of issue to this research, developing and using plant based fish feed would not be beneficial for society as well as for the aqua culture. Define and Discuss the Nature of and Differences Between Research and Development (RD). Also, Discuss how Research and Development are Accounted for, why the Differences, and why Firms Engage in RD. Nowadays the main ingredient in fish feed is mainly composed of soya-beans, sunflower, corn, etc. the main reason of that is cost as the cost of feeding by use of these ingredients is approximately less than $500 AUD per ton which is a cost-effective manner of feeding and to create a healthy crop-based feed it is also necessary to understand the complex nutrients structure and the requirements of Omega-3 acids are fulfilled or not but by the use of bacteria developed in sewage, dumps, sugarcane residues, etc. the cost of production of feed can further be cut down to far below than $500 AUD per ton of feed supplies and also there is minimal impact on environment by generating feed through these sources (Tibbetts, 2015). The reason for engaging in these research is to find a sustainable method of aquaculture so that there is no detrimental effects on the fish production and the environmental also it should provide quality food to the consumers at cheap cost so that the problem of malnutrition can be controlled and taken care off and it should benefit the company to develop cheap sources of feeding and also take benefit from the grant it received from Common wealth Scientific and Industrial Research Organization (CSIRO) and to spent $200 million AUD carefully on development of alternative sources of feed. To advance the existing products and procedures or for developing new products, business conducts investigative activities. In wider terms, Research and development are linked to governmental and corporate innovations. RD activities are generally different from one company to another company and generally done to achieve long-term profitability (Investopedia, 2016). It is the main sphere of high tech technology firms and big research organizations. The complex nature of society and external markets has increased the scope of research and development. According to Kothari (2004), Research is the pursuit of truth with the help of study, observation, comparison and experiment; the search for knowledge through objective and systematic method of finding solutions to a problem(Kothari, 2004). Research and development has a very slight line of difference. In the field of research, basic research is done to know more about a subject matter and erect the knowledge related to it. This type of research are fulfills the potential interest of the company. It separates the things that wont work and recognize the invention that work. To deal with a specific need or prerequisite, applied research is used. The research is done with some commercial objectives(Goldense, 2015). It determines the feasible solution and is target specific. Development is the next part to the research. It is a type of research that produces the essential knowledge and design for the subject matter. Here the research findings have been utilized towards specific system or method.(Martin, 2014). Research and development is done when a company conceives the idea of new product. When the feasibility of that prospective product is tested with the support of new science, forms the research portion. Now the scienc e which has been discovered turned into a useful product. This forms the development part(Tarver, 2015). Accounting for research and development is done on the basis of accounting standard 8. This standard is related with the management of cost related to RD.(ICAI, 2016). It includes accounting of such activities that make or improves product. The basis accounting rule to this field is that, charge the expenditures to the expenses as and when they occurred. But it is difficult to record this type of expenses as an asset because future benefits of these expenses cannot be ascertained. Research and development projects are also sometimes funded by a sponsor (Accounting Tools, 2016) The cost related to routine modifications referring the already existed product and product line are not included in the cost of research and development. On the basis of following points the accounting for research and development is done: The relation between cost of research and development and its future benefits are used to find out how the cost is allocated to account ting periods. As this is uncertain to determine the amount of benefit and for how many years these benefits will be received, so the RD cost is generally charged for the period of occurrence. There is a systematic way in which deferred research and development cost is amortized. It can be done either by referencing to a reasonable time period or to the sale. In the process of amortization, to decide on the number of units and time period becomes difficult due to technological obsolescence results which result in uncertainties. The suitable legal requirements should also take into account when the RD cost is to be deferred. For example: according to the provisions of section 205 and 350 of the companies act, the fixed assets which are used for research and development activities should be depreciated. The deferred cost should be allocated systematically by referring to the future accounting periods. Companies nowadays, are more engage in research and developmental activities. By this a company future its objectives and improve operational processes. Innovation and change is the basic idea behind research and development. Consumers demand new and innovative products and if they would be offered something that is not seen before, it would help in creating leap in the market for the companies in terms of sale and market involvement. This allows a company to develop crucial marketing and advertising strategies. New product features and design are created by research and development and through marketing activities these changes are interpreted to attract the customers(Lacoma, 2016). Research and developmental activities help a company to gain knowledge and technology. Based on that knowledge the business runs. Not only product and market research is important but research on the new ways of training employees is also essential. By carefully analyzing the output of the research activities, managers can make decisions about the smooth working of the organization. For developing competitive advantages research and development is a very crucial element. For increasing the pace of growth for organizations, RD can act as a catalyst by bringing in advance products in the market. It is the high time that companies should start considering RD expenses as investment rather than expenditures. For the sustainability of business in long term, inventions and researches are essential in every type of organizations(Murali, 2012). The difference in research done earlier and the research done by BSF Ltd. after considering various issues as directed by environmentalists and impacted on cost to the company are that: In earlier research the company miscalculated the required proportion needed to the farmed fish leading to increase in cost to the company and it also affected their growth rate producing undernourished fishes or dead fishes while the later research by producing fish seeds through bacteria found in sugar cane residue, methane gas from sewage, dumps, etc. has helped BSF Ltd. in getting some success both in production and environmental aspects. Fair Market Value Patent Calculation of Fair Market Patent Scenario 1 2013 2014 2015 2016 2017 2018 Grant received 500 BSF costs incurred -170 -170 -160 -100 -100 Expected Market Value 700 NET CASH FLOWS 500 -170 -170 540 -100 -100 Discount rate 8% Fair Market Value (Present Value) AUD 579.18 Scenario 2 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Grant received 500 BSF costs incurred -170 -170 -160 -100 -100 Expected Market Value 200 200 200 200 200 200 200 200 200 200 NET CASH FLOWS 500 -170 -170 -160 -100 -100 200 200 200 200 200 200 200 200 200 200 Discount rate 8% Fair Market Value (Present Value) AUD 779.28 Assumption It has been assumed that discount rate will remain same for period of evaluation The cash generated is utilized immediately to generate rate of return that is same as discount rate Journal Entries for the Research and Development Transactions Date Particulars AUD $ AUD $ 2012-13 Grant from Commonwealth Scientific and Industrial Research Organization (CSIRO) A/c To Bio Sustainable Feeds (BSF) LTD. Dr. 500 million 500 million 2012-13 Expenses on Alternative Aquaculture Feeds A/c To Cash A/c Dr. 100 million 100 million 2013-14 Research A/c To Cash A/c Dr. 500 million 500 million 2014-15 Development A/c To Cash A/c Dr. 200 million 200 million 2015-16 Development A/c To Cash A/c Dr. 200 million 200 million BSF Ltd. management asserted in a prospectus that the patent values were predicated on BSF Ltd. having exclusive control over the bacteria-based feeds technology.1 How reasonable is that assertionsupport your answer with references to current and recent (e.g. last decade or so) research. The company in its second research about bacteria based feed, has already spent a total of $500 million AUD ($340 million plus $160 million) on research and has committed to spend $200 million in development cost over the next two years to develop an alternative aquaculture feed from the research done to date. The company in its prospectus included that the expected net market value of the patent is $700 million AUD if sold in two years or $200 million AUD a year for 10 years if produced and sold. To this patent value, company asserts to have exclusive control over this new alternative way of aqua feed. According to the company, this technology is all new and sustainable and no research has been done previously about the bacteria feed. The assertion of BSF Ltd about the patent value is not correct. Because there are various companies who already researched in the area of bacteria based feeding. This idea has developed in late 1980s and constantly going through improvements and is re-examined to fulfill the increasing demand for fish feed. (Helmer, 2016)Thus, the idea developed by BSF Ltd is not unique or new. Eventually it will reduce the amount of valuation of patents. The research has been done related to phototrophic bacteria as an alternative for fish feed. The biomass of these phototrophic bacteria is reported to be highly nutritive as compared to plant based feed. Also increase in weight and survival rate is seen through the research conducted. According to the researchers views in the article, the rate of survival has increased if phototrophic bacterial cell are added to the feed soon after hatching. The main reason for survival as indicated was the supply of protein by the phototrophic bacteria.(Banerjee et al., 2016). References Accounting Tools, 2016. Research and development. [Online] Available at: https://www.accountingtools.com/questions-and-answers/research-and-development-accounting.html [Accessed 22 September 2016]. Aquafeed.com , 2014. USA - Producing aquafeed ingredients using plant-based proteins. [Online] Available at: https://www.aquafeed.com/read-article.php?id=5593sectionid=1 [Accessed 21 september 2016]. Banerjee, S. et al., 2016. Phototrophic Bacteria as Fish Feed Supplement. 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