Wiley GAAP 2013: Interpretation and Application of Generally Accepted Accounting Principles

CHAPTER 18

COLLABORATIVE ARRANGEMENTS

Perspective and Issues

Definitions of Terms

Concepts, Rules, and Examples

Collaborative Arrangements

Joint operating activities

Scope

Accounting for transactions with unrelated third parties

Accounting for transactions between participants

Disclosure

Matters for which guidance is not provided

PERSPECTIVE AND ISSUES

A collaborative arrangement (sometimes referred to in practice as “line-item” joint ventures or “virtual” joint ventures) is a contractual agreement between two or more parties (participants) to jointly conduct business activities for their mutual benefit without the formation of a separate entity in which to conduct the activities. These types of arrangements are commonly used for such purposes as producing motion pictures; designing and developing hardware and/or software; or developing new pharmaceutical drugs. Determining the proper accounting treatment for the various activities included in these endeavors is the subject of Accounting Standards Codification (ASC) 808, Collaborative Arrangements.

Major Topics and Subtopics in the Financial Accounting Standards Board (FASB) Accounting Standards Codification

605-45	Revenue Recognition—Principal Agent Considerations
Broad Transactions
808	Collaborative Arrangements

DEFINITIONS OF TERMS

The following terms are from ASC 808-10-20.

Collaborative arrangement. A contractual agreement that involves a joint operating activity. These arrangements involve two (or more) parties ...