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Business combination
61.Unit of account—IPR&D
Relevant guidance
Company A acquired Company B, which is accounted for as an
acquisition of a business under ASCÂ 805. At the acquisition date,
Company B was pursuing completion of an IPR&D project that,
if successful, would result in a drug for which Company A would
seek regulatory approval in the US and Japan. This research and
development project is in the latter stages of development but is
not yet complete. The nature of the activities and costs necessary
to successfully develop the drug and obtain regulatory approval
for it in the two jurisdictions are not substantially the same. If
approved, the respective patent lives are expected to be different
as well. In addition, Company A intends to manage advertising
and selling costs separately in both countries.
Under ASCÂ 805, because of the requirement to capitalize and
test the acquired IPR&D asset for impairment, it is important
to determine the appropriate unit of account. Determining the
appropriate unit of accounting for valuing and recognizing
acquired IPR&D can be complex when an approved drug may
ultimately benefit various jurisdictions. One common approach
is to record separate jurisdictional assets for a research and
development activity that will benefit various jurisdictions, while
another approach is to record a single global asset. When making
the unit of account determination, companies may consider,
among other things, the following factors:
• Phase of development of the related IPR&D project(s)
• Nature of the activities and costs necessary to further develop
the related IPR&D project(s)
• Risks associated with the further development of the related
IPR&D project(s)
• Amount and timing of benefits expected to be derived from
the developed asset(s)
• Expected economic life of the developed asset(s)
• Whether there is an intent to manage advertising and
selling costs for the developed asset(s) separately or on a
combined basis
What is the unit of account for the
acquired IPR&D asset? 
• Once completed, whether the product would be transferred as
a single asset or multiple assets
The acquired IPR&D project would likely be recorded as two separate “jurisdictional” IPR&D assets. While there may be other
factors to consider, Company A’s assessment may lead it to believe that the development risks, the nature of the remaining activity
and costs, the risk of not obtaining regulatory approval, and, as noted above, expected patent lives for the acquired IPR&D are not
substantially the same in both countries. Finally, Company A intends to manage the drug separately, including separate advertising
and selling costs in each country.