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A Report of Drug X Transfer

In: Business and Management

Submitted By gaogaogao
Words 1729
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Executive Summary The report analyzes three options to record the transfer of the in process research and development project Drug X from Bust-a-Knee to Pharmers. Based on the analysis, we recommend Options #3 as the approach to record the journal entries at the date of transfer. The first option records the acquisition of Drug X and OuchX into an intangible account -- “ownership”. In the case of transfer ownership of the IPR&D of Drug X from Brust-a-Knee to Pharmers, Brust-a-Knee receives $2 million cash and incurred $2 million loss. The disadvantage of treating the $2 million loss into the expense account of Drug X is there may be future economic benefits for Brust-a-Knee to sell Drug X because the estimated revenue is $5.5 million. The second journal entry records increase of cash and revenue by $4 million, increase of cost of goods by $4 million and decrease in IPR&D account by $4 million. The second option shows changes in asset from IPR&D to cash as well as a matching revenue and expense caused by the transaction. However, the second journal entry does not consider the future possible $3.5 million profit by selling Drug X as well. The major difference between Option#3 and the other two options is that the $3.5 million is counted as the sales revenue at the date of transfer because it is highly possible for Bust-a-Knee to receive the future economic profits. Since Pharmer is the market’s largest pharmaceutical company, its technology and marketing skills on the development and sales on Drug X can be trusted. Moreover, the assumption that FDA approval is granted has also been established. Thus, Drug X will be considered to rapidly develop and gain population in future market. Therefore, we recommend the third option to record the journal entry at the date of transfer.

Introduction Bust-a-Knee is a medical device company that develops…...

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