Essay on Pharmagen 9-2 Deloitte Trueblood Case

962 WordsFeb 19, 20144 Pages
Trueblood Case 9-2: Pharmagen 1. State the issue at hand. (Typically this is merely the question you are asked at the end of the case.) How to account for the funding of the R&D and royalty payments 2. State the fact pattern. BRIEFLY present the relevant facts. (Bullet points can be very useful here.) (This can be a challenge, given that some Trueblood cases are only a few paragraphs long, it can be hard to further summarize them.) • Pharmagen entered into a funding agreement with Company XYZ, an unrelated third-party private equity investor (PEI) • Pharmagen will receive $500 million from PEI for R&D costs associated with drug X • The funding is to be used solely for the development of X and may not be used for any other purposes…show more content…
o ASC 730-20-25-7 – “An entity that incurs a liability to repay the other parties shall charge the research and development costs to expense as incurred. The amount of funds provided by the other parties might exceed the entity's liability.” • Pharmagen needs to also disclose in the footnotes the terms of the royalty arrangements that it is to pay the PEI. o ASC 730-20-50-1 – “An entity that under the provisions of this Subtopic accounts for its obligation under a research and development arrangement as a contract to perform R&D for others shall disclose both of the following: o a. The terms of significant agreements under the research and development arrangement (including royalty arrangements, purchase provisions, license agreements, and commitments to provide additional funding) as of the date of each balance sheet presented. o b. The amount of compensation earned and costs incurred under such contracts for each period for which an income statement is presented.” • I believe Pharmagen should recognize the funding from the PEI as debt as opposed to deferred income. o ASC 470-10-25-2 “While the classification of the proceeds from the investor as debt or deferred income depends on the specific facts and circumstances of the transaction, the

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