(a). IFRS 13: Fair Value Measurements states that, when measuring fair value, the objective is to estimate the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e. to estimate an exit price).

A fair value measurement assumes that the transaction takes place in the principal market (the market with the greatest market rather than firm-specific volume and level of activity for the asset or liability) for the asset or liability. Only in the absence of a principal market does the entity assume that the transaction takes place in the most advantageous market (the market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transportation costs).

Djato Autos PLC (DA) should therefore base its measurement of fair value on prices in Southern zone. Pricing is taken from this market even though DA does not normally transact in that market and it is not the most advantageous market. Therefore, fair value per car is GH¢24,900 (GH¢28,000 less GH¢3,100), considering transportation costs but not transaction cost, even though DA does business mostly in Northern zone and could maximize its net proceeds in that market (GH¢27,000 – GH¢3,500 = GH¢23,500).

At 31 August 2024, the total value of all 300 cars should be measured at GH¢7.47 million (GH¢24,900 × 300). DA would only be allowed to use fair value inputs from the Northern zone which represents the most advantageous market if and only if the company is unable to access the principal market (that is, the Southern zone). In that case, fair value per car would be GH¢25,000 (GH¢27,000 less GH¢2,000).

(b). An intangible asset from a development activity should only be recognised if it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably. [IAS 38 para 21]
To qualify for capitalisation as development cost, the asset should generate probable future economic benefits demonstrated by the existence of a market for the asset’s output and the usefulness of the asset if it is to be used internally. [IAS 38 para 57(d)]. Specifically, development costs should be capitalised as an intangible asset if all of the following criteria are met [IAS 38 para 57]:
i) The technical feasibility of completing the asset so that it will be available for use or sale.
ii) The intention to complete the asset and use or sell it.
iii) The ability to use or sell the asset.
iv) The asset will generate probable future economic benefits and demonstrate the existence of a market or the usefulness of the asset if it is to be used internally.
v) The availability of adequate technical, financial and other resources to complete the development and to use or sell it.
vi) The ability to measure reliably the expenditure attributable to the intangible asset.

Development cost for the limited market use
All development criteria must be met to start capitalising development costs. A strong indication that an entity has met all of the above criteria is when it obtains regulatory authority for final approval. Kwanpa Pharma (KP) should capitalise development costs for this drug when the criteria in IAS 38 are met, this is likely to be on regulatory approval.
KP will need to assess the capitalised costs for any indication of impairment at each reporting date [IAS 36 para 9], and to test for impairment annually before it is available for use. [IAS 36 para 10].
The concern over the potential market might be a trigger for impairment.

The new functionality development expenditure
KP should not capitalise the expenditure that it incurs to add new functionality, because new functionality will require filing for new regulatory approval. This requirement implies that technical feasibility of the modified device has not been achieved.

(c). Environmental Concerns:
The Project’s extensive land clearing raises significant concerns about deforestation and habitat destruction. Biodiversity loss could be substantial, impacting various plant and animal species. Additionally, the project’s water-intensive nature poses a risk to local water supplies, potentially affecting both ecosystems and human communities. Pollution, particularly from chemicals used in the extraction process, could contaminate local water bodies, endangering aquatic life and human health.

Social Impacts:
Local communities face the threat of displacement, disrupting their traditional lifestyles and social structures. Ensuring fair compensation and support for displaced populations is crucial. Moreover, the project poses health risks, including respiratory issues from dust and exposure to hazardous chemicals. While the project promises economic benefits, these may not be evenly distributed, potentially exacerbating existing economic disparities.

Governance Challenges:
Ensuring regulatory compliance is challenging, given potential enforcement weaknesses. Effective governance requires transparency and accountability to prevent corruption and mismanagement. Regular public reporting and community engagement are vital to build trust and ensure that the operations benefit all stakeholders.