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问答题(c)Klancet is collaborating with Retto Laboratories (Retto), a third party, to develop two existing drugs owned by Klancet. In the case of the first drug, Retto is simply developing the drug for Klancet without taking any risks during thedevelopment phase and will have no further involvement if regulatory approval is given. Regulatory approval hasbeen refused for this drug in the past. Klancet will retain ownership of patent rights attached to the drug. Rettois not involved in the marketing and production of the drug. Klancet has agreed to make two non-refundablepayments to Retto of $4 million on the signing of the agreement and $6 million on successful completion of thedevelopment. Klancet and Retto have entered into a second collaboration agreement in which Klancet will pay Retto fordeveloping and manufacturing an existing drug. The existing drug already has regulatory approval. The new drugbeing developed by Retto for Klancet will not differ substantially from the existing drug. Klancet will have exclusivemarketing rights to the drug if the regulatory authorities approve it. Historically, in this jurisdiction, new drugsreceive approval if they do not differ substantially from an existing approved drug. The contract terms require Klancet to pay an upfront payment on signing of the contract, a payment on securingfinal regulatory approval, and a unit payment of $10 per unit, which equals the estimated cost plus a profitmargin, once commercial production begins. The cost-plus profit margin is consistent with Klancet’s otherrecently negotiated supply arrangements for similar drugs. Klancet would like to know how to deal with the above contracts with Retto. (8 marks) Required: Advise Klancet on how the above transactions should be dealt with in its financial statements with reference to relevant International Financial Reporting Standards. Note: The mark allocation is shown against each of the three issues above. Professional marks will be awarded in question 3 for clarity and quality of presentation.(2 marks)

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