Czeslaw Corporation\'s research and development department has an idea for a pro
ID: 2458994 • Letter: C
Question
Czeslaw Corporation's research and development department has an idea for a project it believes will culminate in a new product that would be very profitable for the company. Because the project will be very expensive, the department requests approval from the company's controller, Jeff Reid. Reid recognizes that corporate profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to the requirements of the authoritative literature. He knows that if they hire an outside firm that does the work and obtains a patent for the process, Czeslaw Corporation can purchase the patent from the outside firm and record the expenditure as an asset. Reid knows that the company's own R&D department is first rate, and he is confident they can do the work well.
Answer the following questions:
(a) Who are the stakeholders in this situation?
(b) What are the ethical issues involved?
(c) What should Reid do?
Explanation / Answer
Stake holder in this situation will be the outside firm.
The ethical issues involved in this situation instead of purchasing the patent by itself they are trying to obtain by hiring the outside firm who does this work and then purchasing from them. Since, Czeslaw corporation is having losses and is down it is difficult for them to obtain the patent since the company who is selling the patent wont sell to the company which is not doing well. Secondly they are trying to purchase and record the expenditure as an asset. Instread they have to show under the seperate head called intangible asset and capitalize them.
Reid should Directly apporach the patent company and negotiate on the deal. Secondly he should follow the proper convention to record the transaction involved in purchasing the patent.
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