8.10 R&D Arrangements
ASC 810-30 addresses R&D arrangements in which all of the funds for the
R&D activities are provided by sponsors of
such arrangements. For this purpose, a sponsor is
defined as an entity that capitalizes an R&D
arrangement in return for a common stock interest
in the R&D entity. For instance, ASC 810-30
discusses a transaction in which a sponsor
capitalizes a new entity with cash, as well as
rights to certain technology developed by the
sponsor, in exchange for Class A and Class B
common stock in the new entity. The Class B common
stock conveys essentially no financial interest to
the sponsor and, other than certain blocking
rights, provides the sponsor with essentially no
voting rights. The sponsor subsequently
distributes the Class A common stock to its
shareholders in accordance with a purchase option
held by the sponsor. The sponsor then receives
funds from the new entity to perform R&D
activities.
ASC 810-30 specifies the sponsor’s accounting for the specific transaction described above. ASC 810-30-45-2 states that the R&D expense recognized by the sponsor for this arrangement should not be allocated to the new entity’s Class A common stock in the determination of net income or income available to the sponsor’s common stockholders in its calculation of EPS.