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Accounting Issues and Solutions in Pharmaceuticals

Accounting Issues and Solutions in Pharmaceuticals - Dissertation Example

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The paper "Accounting Issues and Solutions in Pharmaceuticals" debates financial managers and economists regarding the fact pertaining to the accounting treatment of research and development expenditure in the financial statements of pharmaceutical companies…

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Accounting Issues and Solutions in Pharmaceuticals

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Subject: Finance & Accounting
Type: Dissertation
Level: Masters
Pages: 60 (15000 words)
Downloads: 2
Author: sabinakoch

Extract of sample "Accounting Issues and Solutions in Pharmaceuticals"

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This particular, in addition to providing a brief historical background of the R&D accounting treatments, highlights the following main R&D accounting issues and their most prudent accounting treatment in the financial statements of a pharmaceutical company:

Goodwill accounting during merger and acquisition transactions between multinational
Exchange of intangible assets with continuing involvement
Upfront payments to conduct research with access to the research
Payments made to conduct research
Upfront payments received to conduct development: Interim recognition
Upfront payments received to conduct development: Completion
Donation payment for research
Loans received to fund research and development purposes
Segmental reporting of internal research and development
Treatment of development supplies
Advertising and promotional expenditure
Accounting for the cost of free samples
Line extension development costs

The paper also presents the linkage between research and development expenditure and financial viability. For this purpose, the last three financial years of AstraZeneca are used.

Introduction

The top of the worldwide pharmaceutical market is the US and it is expected to hit almost $345 billion in 2014. The second largest market is the Japanese market and then the European market including Germany France, and the Chinese market (Market line industry guide, 2012). However, the International Federation of Pharmaceutical Wholesalers (IFPW) shows that growth rates in developed and developing markets based on their capability to recover from the economic crisis are significantly inconsistent. According to the research of Urch Publishing (2012), the global pharmaceutical industry in 2014 is expected to be worth over $1 trillion with a 5% compound annual growth rate. The pharmaceutical industry becomes more competitive.

Table5 displays major competitors in the pharmaceutical industry. Moreover, major important competitors of AstraZeneca include Actelion Ltd, Ashton Corporation, Aeolus Pharmaceuticals, Inc., and Indevus Pharmaceuticals, Inc as well (MarketLine 2012, p27).

Table5 Major competitor companies

Company

HQ location

Pharmaceutical Segment Sales

Total revenue

Share of pharmaceutical segment

$Million

Johnson & Johnson

25,400

67,224

38%

Pfizer

51,214

58,986

87%

Novartis

Switzerland

32,153

56,673

57%

Merck

40,601

47,267

86%

Roche

Switzerland

35,200

45,500

77%

Sanofi-Aventis

France

39,940

42435

94%

AstraZeneca

43,143

100%

GlaxoSmithKline

27,758

40,722

68%

Eli Lily

19,934

22,603

88%

Source: 2012 Annual Report of the companies

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