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US GAAP—Issues and Solutions for the Pharmaceuticals and Life Sciences Industries
9. Asset acquisition of a compound
Background
Relevant guidance
Company A acquired a compound for $5 million on January 1,
20X2. Assume there is no alternative future use and that the
acquired asset does not constitute a business. Company A expects
to receive regulatory and marketing approval on March 1, 20X3
and plans to start using the compound in its production process
on June 1, 20X3.
Intangible assets purchased from others (not in a business
combination) for use in research and development activities
follow the guidance in ASCÂ 730, Research and Development. Assets
that have future alternative use are accounted for in accordance
with the guidance in ASC 350, Intangibles—Goodwill and Other.
The useful life of an intangible asset to an entity is the period over
which the asset is expected to contribute directly or indirectly to
the future cash flows of that entity [ASC 350–30–35–2].
The method of amortization shall reflect the pattern in which
the economic benefits of the intangible asset are consumed or
otherwise used up [ASC 350–30–35–6].
How should Company A account for
the acquisition of the asset? 
Solution
Because the compound was acquired prior to regulatory approval, the payment would be expensed as research and development
costs (since there is no alternative future use and the acquired asset does not constitute a business). If the compound had been
acquired after regulatory approval, Company A would begin amortizing the intangible asset on the date it is available for its
expected use. This would generally be the acquisition date for an approved compound.
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