As part of the arrangement, Company A agrees to provide Company B a perpetual license to Company A’s proprietary IP. Company A also agrees to provide R&D services to Company B in the form of completing clinical trials to develop the potential drug. Company A receives an upfront payment of $40 million at the inception of the arrangement and is eligible to receive a milestone payment of $10 million upon the completion of the phase I clinical trial (“Phase I milestone”). A customer issues a purchase order to Company A, a medical equipment company, for equipment and installation services.

35 Accounting for payments to a customer

• Assuming Company A determined the contract had three separate performance obligations, revenue recognition for the allocated amounts would occur upon transfer of control for the sale of the medical device and specified upgrade.
• Expected cost plus a margin approach—An entity could forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.
• Company A is paid in full under the contract at the inception of the arrangement.
• Get started using simple cloud-based accounting software for your pharmacy with a free 30-day trial.
• If your inventory turnover ratio is 12, then your days on hand is roughly 30.

It derives its status only from the accrual system of accounting and thereby, it does not apply in a cash-based, single-entry accounting system. The accounting equation connotes two equations that are basic and core to accrual accounting and double-entry accounting system. The entity cannot have the ability to use the product or to direct it to another customer. The contract has a large number and broad range of possible consideration amounts. Company A needs to evaluate whether the volume purchase arrangement represents a material right. The most likely amount – The most likely amount is the single most likely amount in a range of possible consideration amounts (that is, the single most likely outcome of the contract)…

• In this case, Company has extensive experience that it believes has predictive value.
• This past fall I started working on an MBA through West Texas A and M’s distance learning program and the first course I took was accounting, which I had never taken before.
• The standalone selling prices are not directly observable as Company A does not sell the license or R&D services on a standalone basis.
• There are also indicators present that could point to Wholesaler X being Company A’s agent.
• In retail, McDonald’s closed some of its stores in Japan because of what it said in an online statement was a “cash register malfunction.” And the British grocery chain Waitrose was forced to put up handwritten notes informing customers that it was only accepting cash.
• Alexander Smith is a senior reporter for NBC News Digital based in London.

1 Scope considerations when accounting for collaboration agreements

• Company A will update its estimate at each reporting date until the uncertainty is resolved.
• This is a powerful number for determining how good of a job you and your team are doing in managing inventory.
• Company A would record sales to Distributor X at a transaction price of $97.50 ($100 less 2.5% discount).
• Company A would need to recognize $3.3 million of revenue for the year ended December 31, 20X3 as it has already recognized $30 million in cumulative revenue through December 31, 20X2.

This was due to updates in the trial design from a November 20X3 notification from the FDA stating that an additional patient cohort had to be added to the trial based on its review. Cumulative actual costs of $30 million had been incurred through December 31, 20X3. The assessment of whether a significant reversal could occur should be done at the contract level. In this arrangement, if the $10 million milestone was included in the transaction price (assuming completion of Phase I), this would result in $37.5 million ($50 million x 75% complete) of cumulative revenue recorded at the completion of the Phase I clinical trial. If the Phase I milestone was not achieved, the potential adjustment to revenue would be an additional recognition of $2.5 million ($40 million compared to $37.5 million).

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21 Rebates paid to a customer’s customer

Company A also agrees to provide research and development (R&D) services in the form of clinical trials to Company B to develop the potential drug. Company A receives an upfront payment of $20 million at the inception of the arrangement and is eligible to receive a milestone payment of $25 million upon regulatory approval. In the fact pattern above, all the criteria have been met for the arrangement to qualify as a sale under the bill and hold guidance. Company A would therefore recognize revenue for the equipment as of December 31, 20X8. Company A should also consider whether it has a remaining performance obligation for custodial services (in addition to the installation services). Since it has a sufficient basis to estimate that 2,000 units will be purchased, Company A could estimate the total consideration that Company B will pay under the volume purchase arrangement and allocate it to the expected total purchase of 2,000 units.

34 Future discount on next-generation equipment

It should be noted; however, that some companies may experience higher coverage gap liabilities earlier in the year (e.g., with certain more expensive drugs) with sales reverting back to list price in subsequent periods. In these cases, it would not be appropriate to follow a spreading approach that results in a contract asset on the balance sheet as that would, in effect, be inappropriately pulling revenue forward for optional purchases. However, pharmacy accounting some companies may experience higher coverage gap liabilities earlier in the year (e.g., with certain more expensive drugs) with sales reverting back to list price in subsequent periods. Under the “spreading” approach, the estimated impact of the rebate expected to be incurred for the annual period is recognized ratably using an estimated, effective rebate rate for all of a company’s projected sales to Medicare patients throughout the year.

• Company A would not be able to recognize the full $20,000 as revenue at December 31, 20X9.
• Company A assessed the facts and circumstances surrounding the change in estimate, which resulted from new information communicated by the FDA in November 20X3.
• Company A is recording revenue over time in a cost-to-cost model as a single performance obligation because it concluded the license and R&D services are not distinct.
• Company A enters into an arrangement to provide Company B with a license to use its IP for a single indication.
• While it’s too late in the season for most tax planning mitigation strategies, you can still be proactive by making sure your CPA has an understanding of your pharmacy and what’s vital for proper accounting, advisory, and tax, Sykes said.
• Company A determined that it would be appropriate to use a cost-to-cost method to measure progress because this measure of progress best depicts its transfer of control of the R&D services to Company B under the contract.

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Vice President of Business Development (Remote)

A new 340B dispute resolution process could create more opportunities for providers