Yi Liu
ACCT 712 Tuesday,
Case 09-2
Pharmagen Pharmaceutical Development Funding
1. Explain why the arrangement can be said to provide funding for a product in the R&D
phase (X) and should be accounted for under ASC730-20 (Statement 68), but not ASC
470-10-25-1 through 25-2 (Issue 88-18).
2. Explain why the arrangement can be said to provide funding in return for an interest in
the future revenues of a product (Y) and should be accountedfor in accordance with ASC
470-10-25-1 through 25-2 (Issue 88-18), but not ASC730-20 (Statement 68).
3. There is a third point of view. Describe it
In your response, consider that there are two products involved: X is the product for which
Pharmagen will perform R&D; Y is the already commercialized product that is producing
revenue [think Tylenol or Viagra], and use the term ‘Y’ when referring to this product.
Also, be sure to keep in mind that two products are involved, X and Y
1. Explain why the arrangement can be said to provide funding for a product in the
R&D phase (X) and should be accounted for under ASC730-20 (Statement 68), but
not ASC 470-10-25-1 through 25-2 (Issue 88-18).
As mentioned in the case, Pharma will receive up to $500 million from PEI for R&D costs
for Drug X solely. The fund, up to $500 million, can be either reimbursement of direct cost
or fixed fee. The R&D costs have to be used on the Drug X only, and Pharma operates the
research under a “best efforts” arrangement with no guarantee of success. Moreover, PEI
