Question

Read the following Judgement Case prompt:

Assume that Pfizer, a large research-based pharmaceutical company, enters into a contract with a start-up biotechnology company called HealthPro and promises to: Grant HealthPro the exclusive rights to use Pfizer’s Technology A for the life of its patent. The license gives HealthPro the exclusive right to market, distribute, and manufacture Drug B as developed using Technology A. Assign four full-time equivalent employees to perform research and development services for HealthPro in a specially designated Pfizer lab facility. The primary objective of these services is to receive regulatory approval to market and distribute Drug B using Technology A. HealthPro is required to use Pfizer’s lab to perform the research and development services necessary to develop Drug B using Technology A, because the expertise related to Technology A is proprietary to Pfizer and not available elsewhere.

After reading the above prompt, respond to the following:

Discuss the 2016 financial statement presentation of each of the above events. Do not consider earnings per share disclosures. What parts of this contract are separate performance obligations? Explain your reasoning for each obligation.

Answer 1

WHEN A PROMISE IS LEGALLY ENFORECEABLE ,BECOMES A CONTRACT.

IN THE GIVEN QUESTION THERE IS A CONTRACT BETWEEN PFIZER AND HEALTHPRO TO GRANT HEALTHPRO THE EXCLUSIVE RIGHT TO USE PFIZER'S TECHNOLOGY A FOR THE LIFE OF ITS PATENT.

THE LICENSE GIVES HEALTHPRO THE EXCLUSIVE RIGHT TO MARKET,DISTRIBUTE,AND MANUFACTURE DRUG B AS DEVELOPED USING TECHNOLOGY A. HEALTHPRO IS REQUIRED TO USE PFIZER'S LAB TO PERFORM THE RESEARCH AND DEVELOPMENT SERVICE NECESSARY TO DEVELOP DRUG B USING TECHNOLOGY A, BECAUSE THE EXPERTISE RELATED TO TECHNOLOGY A IS PROPRITARY TO PFIZER AND NOT AVAILABLE ELSEWHERE.

FINANCIAL STATEMENT GENERALLY SHOWS ALL OF ITS CONTRACTS AT THE BOTTOM OF FINANCIAL STATEMENT UNDER THE HEAD NOTES TO ACCOUNTS OR SCHEDULES.THE ABOVE CONTRACT OF PFIZER AND HEALTHPRO SHOULD ALSO IN THE NOTES TO ACCOUNTS.

THE PRIMARY PART OF THIS CONTRACT IS TO DEVELOP DRUG B USING TECHNOLOGY A.USING PFIZER'S TECHNOLOGY A DEVELOPING OF DRUG B IS A SEPARATE PERFORMANCE OBLIGATION.