Solvgen Case

624 Words Mar 23rd, 2012 3 Pages
Case 10-1 SolvGen Inc. In this case study, we deal with two separate agreements between SolvGen and Careway Pharma that are being audited for the possible sale of SolvGen to Direct Drugs, Inc. First, is the research and development agreement between SolvGen and Careway. And second, is the license and distribution agreement between the aforementioned. These agreements are both written and contractually binding and are within the scope of Multiple Deliverable Arrangements. The deliverables for the arrangements described in the case study are: a five-year research and development agreement and a five-year license and distribution agreement. For the five-year research and development agreement, SolvGen would use its best efforts to …show more content…
However, this does not apply to the nonrefundable milestone payments from Careway, because they are payments relating to research and development deliverables that are accounted for under the milestone method of revenue recognition. The milestone payments received to date by SolvGen should be recognized as revenue over the expected period of the related research program. A portion of each milestone payment is recognized when the milestone is achieved based on the percentage of the research term that has elapsed. Any balance is recognized over the remaining research term. Each milestone payment should be evaluated separately to determine whether the milestone is substantive. It’s contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. Policies for recognizing deliverable consideration can be applied consistently to similar deliverables or units of accounting (ASC 605-25-05). The answer would not change under the IFRS because it would be the same methods that would apply to the revenue recognition under the IFRS. Both would use the percentage of completion method for the first two payments, exclusive negotiation payment and the contract signing payment because the payments must be spread over the expected period of contract life even though they are nonrefundable. The Version 1 - $ 5 million will be

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