A Report of Drug X Transfer

1716 Words Jul 2nd, 2016 7 Pages
Executive Summary The report analyzes three options to record the transfer of the in process research and development project Drug X from Bust-a-Knee to Pharmers. Based on the analysis, we recommend Options #3 as the approach to record the journal entries at the date of transfer. The first option records the acquisition of Drug X and OuchX into an intangible account -- “ownership”. In the case of transfer ownership of the IPR&D of Drug X from Brust-a-Knee to Pharmers, Brust-a-Knee receives $2 million cash and incurred $2 million loss. The disadvantage of treating the $2 million loss into the expense account of Drug X is there may be future economic benefits for Brust-a-Knee to sell Drug X because the estimated revenue is $5.5 …show more content…
However, due to the efforts put into the development of OuchX, Bust-a-Knee is unable to develop Drug X. Therefore, Bust-a-Knee decides to transfer its ownership of Drug X to Pharmers. This transaction is considered a sale agreement and thus requires certain journal entries to record. Our group will provide three major options on how to record the transaction and analyze each of them.
Option #1 The first option contains journal entries from the beginning of acquisition of Drug X and OuchX to the transfer of Drug X’s ownership. Journal entries are shown as follows: Ownership $15 million Cash $15 million In 2010, Bust-a-Knee paid MD International $15 million cash in exchange for its 100 percent ownership. A $15 million credit to the cash account indicates that Bust-a-Knee paid MD International that amount of cash at the date of transfer of the ownership. Ownership is treated as an intangible asset in this case. Intangible assets are non-physical assets that are acquired from others or developed internally by a company. Assets are the probable future economic benefits controlled by the company from past events or transactions. Intangible assets have similar characteristics with assets. Bust-a-Knee has control over MD International since equity had been transferred and will gain future economic profits because there are two in-process
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