...(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 •The funding is non-refundable and Pharmagen is not necessarily required to complete the development – “best efforts” arrangement •Pharmagen estimates $1 billion in total R&D costs over 3 years •Pharmagen retains the intellectual property rights of X •There are no other agreements that have been executed between Pharmagen and PEI •Pharmagen estimates it will take 3 years to complete drug X from the execution of the agreement •The PEI will contribute funds to the development of X and is entitled to receive future royalties from Pharmagen in return oThe PEI will receive royalties associated with future revenues of X (if/when it has been successfully developed) oThe PEI will also receive future royalties associated with an existing commercialized drug for a defined period 3.Present your answer and the GAAP that supports...
Words: 971 - Pages: 4
...They also have to account for the royalty payments that Pharmagen will owe Company XYZ in the future. Pharmagen pharmaceutical company is working on developing a new drug, X. They have been self-funding the research and development costs. They entered into a Funding Agreement with Company XYZ, a private equity investor, who has agreed to provide Pharmagen with up to $500 million of the total cost needed to develop drug X over the estimated 3 year project time frame. Pharmagen is not obligated to successfully complete the drug and there are no performance obligations related to its development. The money received from XYZ is nonrefundable. However, the money provided by XYZ can only be used towards drug X. If Pharmagen successfully completed the drug and it is approved for public sale, XYZ will receive future royalty payments from both drug X and an existing drug that is already available for public sale. Pharmagen also retains the rights to drug X. Pharmagen should report their cash from XYZ Corporation as deferred income based on ASC 470-10-25-1 (Sales of Future Revenues). It states that when “an entity receives cash from an investor and agrees to pay the investor,” in this case a royalty of future sales, “it is assumed that immediate income recognition is not appropriate due to the facts and circumstances.” Therefore, I believe that Pharmagen should be reporting their royalties, when they are received, as deferred and not immediate income. The only other option under ASC...
Words: 658 - Pages: 3
...1.Define the term: Restating Financial Reports” It is well known that over the past decade the amount of errors being discovered within the financial statements of publicly held companies has risen. One such error was announced by the internet sales company Overstock.com in early 2009. Due to an accounting error, partners of the company were under billed by $1.8 million dollars over the course of 2008. Overstock chose to record this entry incorrectly which falsely ballooned the company’s revenues; in turn, causing them to record an incorrect profit of $1.0 million for the year ended December 31, 2008. Had this entry been booked correctly and within the guidelines of the generally accepted accounting principles (GAAP), Overstock would have recorded its earnings correctly, showing a loss of $0.8 million. This shows us how important restating a financial statement correctly is so important. A financial statement restatement occurs when a company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported. A financial statement also occurs when there needs to be a change in accounting principles or there is an error. The number of financial restatements by public companies has increased in the recent years due to increased scrutiny following the well-known accounting scandals at Enron and WorldCom, amount others. The restatement usually involves a completely new audit and in some cases may affect...
Words: 2719 - Pages: 11
...funding of the R&D and royalty payments. The other issue is to identify the authoritative literature applicable to this funding arrangement and to discuss the appropriate accounting for the Agreement in accordance with that guidance. 2. The facts: a. Pharma enters into an agreement with Company XYZ, a PEI. b. Pharma to receive up to $500 million from the PEI for R&D for the development of a new drug. c. The PEI is to participate financially in the development of X. d. The funding is to be solely used for the development of X. e. The amounts received is non-refundable and Pharma is not obligated to successfully complete the development of X. f. Pharma will receive incremental funding from the PEI as long as Pharma is showing progress towards the development of X. g. The total estimated costs are $1 billion and the development will take 3 years. h. Pharma retains all the intellectual property rights to X. i. There will be no joint marketing agreements nor will there be collaboration agreements. j. The PEI is entitled to receive royalties associated with the revenues of X and future royalties associated with an existing commercialized drug for a defined period. 3. ASC-730-20 is applicable here. This is because Pharmgen is entering into an agreement with PEI (investors) on a contractural basis to provide services for the R&D results (FASB 68). Pharmgen obtains the exclusive rights to the results in return for royalty payments to the PEI. The royalties represent a contingent...
Words: 658 - Pages: 3
...accounting irregularities become known to the public. Green Mountain’s problems all started from how they recognized income, though intercompany inventory and third party vendor. After the SEC inquiry, Green Mountain’s accounting irregularities spanned three fiscal years and three fiscal quarters. Starting with fiscal year 2007 and running through the third fiscal quarter of 2010. In total Green Mountain had five areas of their financial statements in which they did not follow GAAP. The first issue overstated $7.6 million dollars of inventory during the time period, because of an incorrect standard of cost (Dulong, 2010). Next they had a $1.4 million overstated income, because of incorrect accrual amount of incentive programs expenses. Third issue overstated income by $1 million dollars, because of timing classification of historical revenue royalties from third party vendors. Fourth issue overstated $800,000 of income, because of incorrect standards for intercompany inventory cost. Fifth is an understated income of $700,000, because of a failure to reverse accrual customer incentive program. All amounts in this report are amount of pre-income tax earnings. Rule During this time period Green Mountain has violated three rules from the FASB accounting standards codification: inventory measurement, revenue recognition and multi element revenue recognition. Although the SEC had found more problems than just three, the issues at Green Mountain can be classified into these...
Words: 1080 - Pages: 5
...There is a presumption that consolidated statements are more meaningful than separate statements and that they are usually necessary for a fair presentation when one of the entities in the group directly or indirectly has a controlling financial interest in the other entities.” 3. FASB ASC 810-10-45-12 provides the following guidance: “It ordinarily is feasible for the subsidiary to prepare, for consolidation purposes, financial statements for a period that corresponds with or closely approaches the fiscal period of the parent. However, if the difference is not more than about three months, it usually is acceptable to use, for consolidation purposes, the subsidiary's financial statements for its fiscal period; if this is done, recognition should be given by disclosure or otherwise to the effect of intervening events that materially affect the financial position or results of operations.” 4. FASB ASC 805-20-30-7 provides the following guidance: “Paragraph 805-20-30-1 requires the acquirer to measure a noncontrolling interest in the acquiree at its fair value at the acquisition date. An acquirer sometimes...
Words: 22760 - Pages: 92
...avoidance opportunities by sheltering U.S. profits of the U.S. corporate group with deductible payments made to foreign related parties. Moreover, tax benefits are enhanced to the extent that foreign subsidiaries held by the U.S. group (and thereby subject to the U.S. subpart F rules) are restructured or their operations are otherwise transferred to related foreign corporations that are outside the scope of the U.S. subpart F regime because the new foreign parent’s widely held stock places it outside the definition of a controlled foreign corporation. * Many inversions were subject to full taxation at the shareholder level (and sometimes at the corporate level) under prior law. The absence of gain or availability of losses or other income-sheltering tax attributes, however, often mitigated the tax cost in consummated transactions. Notwithstanding the “toll charge” on inversions under prior law, Congress concluded that corporate inversion transactions should be further deterred because of the significant opportunities to strip earnings out of the United States. Congress also believed that similar benefits could be achieved from inversion transactions involving U.S. businesses conducted in partnership form. * . . . [S]ection 7874 operates to effectively disregard the inversion (i.e., in the case where former shareholders own at least 80 percent of the acquiring foreign corporation) or limit the benefits of an inversion (i.e., in the case where the former shareholders...
Words: 2006 - Pages: 9
...[pic] TOPIC: Revenue Recognition CHAPTER LINK: Chapter 6 Boston Chicken, Inc.: No Chicken About Aggressive Franchising Boston Chicken, Inc. franchises and operates retail food service stores under the name “Boston Market” These stores specialize in fresh, convenient meals featuring home style entrees of chicken, turkey, ham, and meat loaf, as well as a variety of freshly prepared vegetables, salads, and other side dishes. It product line also includes sandwiches, soups, and holiday home replacement meals. The total number of stores in the Boston Market system increased from 83 on December 27, Year 12 to 829 on December 31, Year 15. Gross system-wide store revenues increased from $42.7 million during the Year 12 fiscal year to $792.9 million during the Year 15 fiscal year. Franchisees owned and operated all but three of the Boston Market stores open at the end of Year 15. The company retains ownership of three stores to test market new entrees, assess new operating procedures, and train employees. Area Developers The company relies on area developers to achieve rapid penetration of targeted markets. Area developers are independently owned companies to which Boston Market grants an exclusive franchise in a particular geographical area to develop and operate Boston Market stores. An experienced retail food-service veteran with substantial invested equity capital heads each firm that is an area developer. The company currently has 22 area developers. There...
Words: 3043 - Pages: 13
...Abstract: An discussion of Denny’s Corporation’s accounting policies and financial statements as of December 26, 2012 as compared to Red Robin Gourmet Burgers Incorporated’s accounting policies Abstract: An discussion of Denny’s Corporation’s accounting policies and financial statements as of December 26, 2012 as compared to Red Robin Gourmet Burgers Incorporated’s accounting policies Accounting Policies Project Part 1 Accounting Policies Project Part 1 Table of Contents Report 1 Part 1: Discussion of the Balance Sheet Part 2: Discussion of the Consolidated Statements of Income Part 3: Discussion of the Statement of Cash Flows Part 4: Discussion of the Auditor’s Opinion Part 5: Discussion of Revenue Recognition Part 6: Discussion of Accounts Receivable Part 7: Discussion of Inventory and Cost of Goods Sold Part 8: Discussion of Property, Plant and Equipment Report 2 Part 1: Discussion of Intangible Assets Part 2: Discussion of Current Liabilities Part 3: Discussion of Long-Term Debt Part 4: Discussion of Leases Part 5: Discussion of Stockholder’s Equity Part 6: Discussion of Statement of Cash Flows Part 7: Overall Evaluation Denny’s Corporation Financial Statements Notes MD&A Red Robin Gourmet Burgers Inc. Financial Statements Notes MD&A Part 1: Discussion of the Balance Sheet This section will briefly overview and list the major components of Denny’s Corporation and Red Robin Gourmet Burgers, Inc.’s Balance...
Words: 5004 - Pages: 21
...rebates allowed by the entity. An entity usually determines the amount of revenue arising on a transaction by referring to the agreement between the entity and the buyer or user of the asset (Lam & Lau 2009). There have few types of revenue recognition such as from sale of goods, the rendering of services and interest, royalties and dividends. Whereas, some of factors need to be considered when determining when revenue should be recognized in measuring the income of a business enterprise (Lam & Lau 2009). First, the selling price to buyer is fixed or determinable when customer does not have the unilateral right to terminate or cancel the contract and received a cash refund. From the theory, revenue should not be recognized until the refund rights have expired or the specified future events have occurred. However, revenues can be recognized on a pro rata basis if assuming that the amount of refunds can be reliably estimated based on past experience and industry data (Bragg 2010). But, revenue recognition is deferred when the company has lack of ability to estimate reliably. As an example, if a company sells a membership fee that can be cancelled by customer for a full refund at any time during the membership period, the revenue recognition cannot occur until the end of the contractual period (Bragg 2010). The reason for this position is that there is uncertainty as to whether...
Words: 597 - Pages: 3
...A REPORT ON “ROYALTY Payments in industries” Submitted by: Niraj Kumar Agrawal NF121312 A report submitted in partial fulfillment of the requirements of PGP – FM Program of National Institute of Financial Management Sector – 48, Pali Road, Faridabad, Haryana – 121 001 Faculty Guide Dr. A. M. Sherry Acknowledgements I express my deep sense of gratitude to my Faculty guide Dr. A.M.Sherry. He is intellectual person and an expert in his field of taxation. He has got a very rich experience into field of Accounting & Taxation; He has done eminent in the field of taxation. He has been constant source of guidance and inspiration behind the ideas employed in the study. The project could only be completed through the little that I could borrow from the vast sea of his knowledge in this field. I have indeed no formal words to acknowledge the valuable guidance and co-operation extended by him during the project work. I am also thankful to my colleagues for helping me successfully conducting data mining. I extend my gratifications to Mr.Sumit Gupta for his support in collecting the data thru various sites. NIRAJ KUMAR AGRAWAL Roll No: NF121329 Course: PGP - FM Declaration I hereby declare that this project work entitled “Royalty payments by industries“ has been done by me during the academic year 2012-13 under the guidance of my faculty guide Dr. A.M. Sherry ...
Words: 3437 - Pages: 14
...Marriott International, Inc. Patricia Carbajal Kasey Dunbar Nancy Palacios Elena Ross ACC-206 Hospitality Accounting Professor George Williams 5/6/2012 Marriott International, Inc. is at the top of the lodging industry. The company is one of the world's leading hoteliers with 3,700 operated or franchised properties in more than 70 countries. Its hotels include full-service brands and the Marriott family owns about 30% of Marriott International. The top two competitors are Starwood Hotels & Resorts Worldwide, Inc. and Hyatt Hotels Corporation. Starwood Hotels & Resorts Worldwide, Inc. is in the luxury and upscale categories, where the prices are high and the services extensive. They appeal to the most fashionable clientele because the company cultivates celebrities and holds events to attract them. By revenue, Starwood is in the middle, and has the lowest ratio which generates 1/3 of sales from food and beverages. Additionally, the return on equity and return on assets is in the bottom half of the competitor; leaving Marriott to produce 50% more revenue than Starwood. Hyatt Hotels Corporation is a top operator of luxury hotels and resorts that managed, franchised, and owned properties in 45 countries. Its brand offers hospitality services targeted primarily to business travelers and upscale vacationers. The company generates only 33% of the revenues in comparison to Marriott International, Inc. In addition, 60% of the revenues are from hotel operations...
Words: 1175 - Pages: 5
...interest, royalties, dividends, and rentals, for capital appreciation or for other benefits to the investing entity such as those obtained in trading relationship s. PAS 32, paragraph 11 Financial instrument, any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. PFRS 9 paragraph 4.1.1 Financial assets are classified into three: A) Financial assets at fair value through profit or loss – both include equity securities and debt securities B) Financial assets at fair value through other comprehensive income - both include equity securities and debt securities C) ) Financial assets at amortized cost – include only debt securities PFRS 9 paragraph 5.1.1 provides that at initial recognition any entity shall measure a financial asset at fair value plus, in the case of financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. PFRS 9 paragraph 5.2.1 provides that after initial recognition an entity shall measure a financial asset at: A) Fair value through profit or loss (FVPL) B) Fair value through other comprehensive income (FVOCI) C) Amortized Cost Application Guidance B5.1.14 of PFRS 9 All other investments in quoted equity instruments are measured at fair value through profit or loss “by consequence” PFRS 9 paragraph 4.1.5 Financial assets that are irrevocably designated on initial recognition as at...
Words: 1283 - Pages: 6
...of longer and more detailed cases include the Deloitte Trueblood cases (www.deloitte.com/more/DTF/cases_subj.htm), as well as the AICPA cases (www.aicpa.org). A topical listing of the cases is presented with the case and solution following the listing. Topical Index of Student Cases INTERMEDIATE ACCOUNTING Cases Case 1: Reporting acquisition and repayment transactions in the Statement of Cash Flows Case 2: Recording a forfeited payment Case 3: Revenue and expense recognition associated extended warranties Case 4: Accounting for “due on demand” note payable Case 5: Purchase of a controlling interest with a greenmail premium Case 6: Revenue recognition in the construction industry Case 7: Accrual and measurement of interest payments Case 8: Recognition of an asset transfer when title has not yet been received Case 9: Capitalization of interest and property taxes on a construction project Case 10: Deferred compensation and life insurance policy recognition Case 11: Reporting earnings per share balances for subsidiary companies Case 12: Deferment of lease payments Case 13: Disclosure of prior period adjustments in the statement of cash flows Case 14: Measurement and recording of payments for sick days Case 15: Comparative cash flow statements Case 16: Social security benefits as assets Case 17: Recording a stock dividend as a stock split Case 18: Gain on a nonmonetary...
Words: 14730 - Pages: 59
...Background We’ve come a long way since making the first ever mobile call in the UK on 1 January 1985. Today, more than 400 million customers around the world choose us to look after their communications needs. In 30 years, a small mobile operator in Newbury has grown into a global business and one of the most valuable brands in the world. We now operate in around 30 countries and partner with networks in over 50 more. In an increasingly connected world, it’s no longer just about being able to talk and text. Our network allows people to share images and videos as soon as they’re captured; to share thoughts and feelings as soon as they’re created. And because we now do more than just mobile in many markets, more customers look to Vodafone for great value in their fixed line and broadband services too. Vodafone understands that businesses need a communications partner with solutions that scale and adapt as their business needs change. They may need a few smart phones for voice and email on the move. Or they may require a fully integrated solution that enables sharing of documents, video conferencing and access to corporate applications from any location. Whatever their size and whatever their need, we are constantly looking for new, innovative ways to help our business customers grasp every opportunity in a simple and straightforward way. Our commitment to the community in which we operate extends beyond the products and services we offer. The cornerstone of our commitment to...
Words: 1486 - Pages: 6
