We are in the process of negotiating a development license where a big pharma company would pay the costs of continuing R&D on our project. Can someone provide guidance on how this would be accounted for? - is it revenue to us, then our costs incurred, or a reimbursement of our expenditures, or what.
JV Accounting for R&D
Answers
I would consider this a grant and net against expenditures. See SSAP #4 regarding government grants. Whether funds come from govenrment or pharmaceutical company the treatment would seem to be the same to me.
Perhaps you could provide a little more information, but it sounds like you expect to end up with a situation where you will end up with a royalty bearing licence on future shipments of the project, plus receive a cash contribution up front to cover your costs of developing the project, which could be structured as either NRE fees, or an advance on future royalties.
If this is a pe paid royalty, I would suggest capitalising in your balance sheet, and then amortising against royalties on shipment.
If an NRE fee I would suggest traeting as deferred revenue and amortising over the project life.
You need to provide more info. Is the pharma company providing an up-front payment only for development? Or is it on anticipation of revenues? In my view the structure of the contract would dictate the
Filed Under:
FP&A