The entity is primarily responsible for fulfilling the promise to provide the specified good or service. This typically includes responsibility for the acceptability of the specified good or service (for example, primary responsibility for the good or service meeting customer specifications). If the entity is primarily responsible for fulfilling the promise to provide the specified good or service, this may indicate that the other party involved in providing the specified good or service is acting on the entity’s behalf.

Payments and Receivables Related to Medical Services

• Distributor X then sells the product to Customer B. Customer B is entitled to a sales rebate from Company A of 25% of the sales price of the first 100 units if 1,000 units are purchased.
• Because Company A cannot receive registry management service from parties other than the purchasers of its products, it would be unable to conclude that the service it receives is capable of being distinct.
• If the option to obtain additional licenses are at a price that reflects the standalone selling price for the additional license, the option does not provide Company B with a material right even if the option can only be exercised because of the previous contract.
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• Company A also provided price protection to Company B for any unsold inventory on hand.

Based on their standalone selling prices ($450 and $150), this results in 75% ($375) being allocated to the equipment performance obligation and 25% ($125) being allocated to the installation services performance obligation. The installation services are relatively routine in nature and Company A is not the only party capable of performing the services. Based on this evaluation, Company A concluded the contract included two separate performance obligations to the customer (the equipment and installation services). A customer issues a purchase order to Company A, a medical equipment company, for equipment and installation services.

Bookkeeping Services for Pharmacys

Bringing a new product to market is a lengthy and costly process, and it can take years for a company to see any return on investment, assuming the product is approved by the FDA. This impacts the accountant’s accounting for pharmacies ability to recoup costs, fund other research projects, accurately report on their financials and make timely business recommendations. Let’s look more closely at how these four phases affect pharma accounting.

11 Estimating variable consideration when there are contingent bonus payments

MedTech will need to assess the measure of progress for the promise to provide the warranty to determine when the revenue allocated to the warranty should be recognized (that is, ratably over the warranty period or some other pattern). Company A has established a standalone selling price of $450 and $150 for the equipment and installation services performance obligations, respectively. Since it has a sufficient basis to estimate that 2,000 units will be purchased, Company A could estimate the total consideration that Company B will pay under the volume purchase arrangement and allocate it to the expected total purchase of 2,000 units. The transaction price per unit on 2,000 units would be $10 ((1,000 units x $12 plus 1,000 units x $8)/2,000 total units). At the end of each quarter, it would revise the estimate of sales under the volume purchase arrangement and record a true-up to reflect the cumulative adjustment on shipments through that date. The performance obligation in the contract is the promise to deliver individual units of the pharmaceutical drugs to Distributor X as requested over the term of the sales arrangement.

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Founded and owned by pharmacists, PBA Health serves independent pharmacies with group purchasing services, wholesaler contract negotiations, proprietary purchasing tools, and more. The information gleaned from these audit logs serves many purposes to an experienced pharmacy CPA. Sykes said key areas he reviews using audit logs include revenue trends compared to what the accounting is showing; new scripts versus refills, which give an indication on whether the pharmacy is growing or dying; and gross margins and how they compare to the pharmacy’s books. Any differences between these logs and what’s reflected on the books can add insight that you may otherwise have overlooked. If the challenge of marrying data analytics with supply chain, innovation and regulatory compliance resonates with your professional goals, a career in pharmaceutical accounting may be a good fit. Even if you come from a different industry, your core accounting skills are still desirable to recruiters, particularly for early or mid-career accountants.

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It includes features such as invoicing, inventory management, and financial reporting, along with various other accounting features. A company incurs a liability for the annual fee in the period in which the underlying sale occurs. As a result, the liability related to the annual fee should be estimated and recorded in full upon the first qualifying sale in the applicable calendar year in which the fee is payable. A corresponding deferred cost should be amortized to expense using a straight-line method of allocation, unless another method better allocates the fee over the calendar year in which it is payable. Since the annual fee is based on a company’s market share each year, it is important to consider whether there could be significant changes to a company’s market share from one year to the next, which should be estimated each reporting period.

• The transaction price per unit on 2,000 units would be $10 ((1,000 units x $12 plus 1,000 units x $8)/2,000 total units).
• Company A obtained FDA approval for Drug B two years ago, and began selling Drug B immediately to the hospital.
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• ASC 606 does not require a fixed delivery schedule to recognize revenue, but the requirement for transfer of control may not be met if the stockpile inventory is not separately identified as belonging to the customer and is subject to rotation.

Company A also provides Company B with an option during the term of the arrangement to add additional indications if the IP is proven effective for those other indications. Entities should consider termination clauses when assessing contract duration. If a contract can be terminated early for no compensation, enforceable rights and obligations would likely not exist for the entire stated term. The contract may, in substance, be a shorter-term contract with a right to renew. In contrast, a contract that can be terminated early, but requires payment of a substantive termination penalty, is likely to have a contract term equal to the stated term.

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Big Pharma Companies and the Threat of Expired Patents