# ASC 730-20-25: Research and Development — Research and Development Arrangements — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/730/20/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:c9a057f1ee9bc4e112e67b59b2fd07afa7c0ae7a4bd11aec05e275d5c0f9704b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 730-20-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/730/20/#25-recognition) SEC content: no ##### [730-20-25-1](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:22d536fb34b941c17a9f73c9a50ec719f42400b8f57159fe4dca3c9b1bed00a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic deals with transactions in which the issue is whether, at the time an entity enters into a [research and development](https://asc.understandingaccounting.org/glossary/r/#research-and-development "Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (referred to as product) or a new process or technique (referred to as process) or in bringing about a significant improvement to an existing product or process. Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives, construction of prototypes, and operation of pilot plants.") arrangement: 1. a The entity is committed to repay any of the funds provided by the other parties regardless of the outcome of the research and development. 2. b Existing conditions indicate that it is likely that the entity will repay the other parties regardless of the outcome. 3. c The entity is obligated only to perform research and development work for others. ##### [730-20-25-2](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:69a11307f9e82c72ae9e23598b5d629b68d34f6b1c3681cf9ed1da2c23309655 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall determine the nature of the obligation it incurs when it enters into an arrangement with other parties who fund its research and development. The factors discussed in paragraphs [730-20-25-3 through 25-9](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-3) and other factors that may be present and relevant to a particular arrangement shall be considered when determining the nature of the entity's obligation. #### Obligation to Repay the Other Parties ##### [730-20-25-3](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:7403d5f371fbde3675cbd32d8faa199761b0e2a39e6f6f326bac7d8f0ab5bd56 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the entity is obligated to repay any of the funds provided by the other parties regardless of the outcome of the research and development, the entity shall estimate and recognize that liability. This requirement applies whether the entity may settle the liability by paying cash, by issuing securities, or by some other means. ##### [730-20-25-4](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:7aba7f9502bc4a839a8872e6f18362edc6ba3d53a6b85abddbaedba7989d17f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To conclude that a liability does not exist, the transfer of the financial risk involved with research and development from the entity to the other parties must be substantive and genuine. To the extent that the entity is committed to repay any of the funds provided by the other parties regardless of the outcome of the research and development, all or part of the risk has not been transferred. The following are some examples in which the entity is committed to repay: 1. a The entity guarantees, or has a contractual commitment that assures, repayment of the funds provided by the other parties regardless of the outcome of the research and development. 2. b The other parties can require the entity to purchase their interest in the research and development regardless of the outcome. 3. c The other parties automatically will receive debt or equity securities of the entity upon termination or completion of the research and development regardless of the outcome. ##### [730-20-25-5](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:2232351306999b6e4402bb9b9bb04c517c13be175b5e805db348b1a1013944cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Even though the written agreements or contracts under the arrangement do not require the entity to repay any of the funds provided by the other parties, surrounding conditions might indicate that the entity is likely to bear the risk of failure of the research and development. If those conditions suggest that it is probable that the entity will repay any of the funds regardless of the outcome of the research and development, there is a presumption that the entity has an obligation to repay the other parties. That presumption can be overcome only by substantial evidence to the contrary. In this context, [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") means that repayment is likely. ##### [730-20-25-6](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:744cfa39e77f605e4f7dce26bc170f29905e6892fc38ebb43276e05166b860ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of conditions leading to the presumption that the entity will repay the other parties include any of the following: 1. a The entity has indicated an intent to repay all or a portion of the funds provided regardless of the outcome of the research and development. 2. b The entity would suffer a severe economic penalty if it failed to repay any of the funds provided to it regardless of the outcome of the research and development. An economic penalty is considered severe if in the normal course of business an entity would probably choose to pay the other parties rather than incur the penalty. For example, an entity might purchase the partnership's interest in the research and development if the entity had provided the partnership with proprietary basic technology necessary for the entity's ongoing operations without retaining a way to recover that technology, or prevent it from being transferred to another party, except by purchasing the partnership's interest. 3. c A significant [related party](https://asc.understandingaccounting.org/glossary/r/#related-parties "Related parties include: Affiliates of the entity Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management Principal owners of the entity and members of their immediate families Management of the entity and members of their immediate families Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.") relationship between the entity and the parties funding the research and development exists at the time the entity enters into the arrangement. 4. d The entity has essentially completed the project before entering into the arrangement. ##### [730-20-25-7](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:07b200f268dc3c2dad5c08c4ec41d687bcd81c6218799bedc6f9f630dcf61e77 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that incurs a liability to repay the other parties shall charge the research and development costs to expense as incurred. The amount of funds provided by the other parties might exceed the entity's liability. That might be the case, for example, if license agreements or partial buy-out provisions permit the entity to use the results of the research and development or to reacquire certain basic technology or other assets for an amount that is less than the funds provided. Those agreements or provisions might limit the extent to which the entity is economically compelled to buy out the other parties regardless of the outcome. In those situations, the liability to repay the other parties might be limited to a specified price for licensing the results or for purchasing a partial interest in the results. If the entity's liability is less than the funds provided, the entity shall charge its portion of the research and development costs to expense in the same manner as the liability is incurred. For example, the liability might arise as the initial funds are expended, or the liability might arise on a pro rata basis. #### Obligation to Perform Contractual Services ##### [730-20-25-8](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:b23bc0561d3cd20efec50584fc50d06c37c38ba23f4f7a645645576a85cede11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To the extent that the financial risk associated with the research and development has been transferred because repayment of any of the funds provided by the other parties depends solely on the results of the research and development having future economic benefit, the entity shall account for its obligation as a contract to perform research and development for others. ##### [730-20-25-9](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:50df9f517768341751811745b3a45a2dd14e326cc22275c3aa1efa753224afbd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the entity's obligation is to perform research and development for others and the entity subsequently decides to exercise an option to purchase the other parties' interests in the research and development arrangement or to obtain the exclusive rights to the results of the research and development, the nature of those results and their future use shall determine the accounting for the purchase transaction or business combination (or an [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities.")). ##### [730-20-25-10](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:30e9f06f0ec27908defad5e0ce626462e672260a4f3bc5ab5f7a50faf66b88b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The accounting for the cost of an item to be used in research and development is specified by paragraphs [730-10-25-1 through 25-2](https://asc.understandingaccounting.org/asc/730/10/#730-10-25-1) . The accounting for recognized intangible assets acquired by the entity is specified in Topic 350. #### Loan or Advance to Other Parties ##### [730-20-25-11](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:275f0fb46d00d8167f84661d6d7d5ed693b89b15d9a7c54e4618feb3ae99ee8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If repayment to the entity of any loan or advance by the entity to the other parties depends solely on the results of the research and development having future economic benefit, the loan or advance shall be accounted for as costs incurred by the entity. The costs shall be charged to research and development expense unless the loan or advance to the other parties can be identified as relating to some other activity, for example, marketing or advertising, in which case the costs shall be accounted for according to their nature. #### Issuance of Warrants or Similar Instruments ##### [730-20-25-12](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:52d6ba36b2272a611872eca3af0c1ae2281515a6f137088930eecb6c96aaa3dc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If warrants or similar instruments are issued in connection with the arrangement, the entity shall report a portion of the proceeds to be provided by the other parties as paid-in capital. The amount so reported shall be the fair value of the instruments at the date of the arrangement. #### Certain Nonrefundable Advance Payments ##### [730-20-25-13](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:e04282d0eb7e31a83cc18363edc16bab714463324fe15c2ce41d9575369d5b8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Nonrefundable advance payments for goods or services that have the characteristics that will be used or rendered for future research and development activities pursuant to an executory contractual arrangement shall be deferred and capitalized. The guidance in this paragraph does not apply to refundable advance payments for future research and development activities. An entity shall not apply the guidance in this paragraph by analogy to other types of advance payments. ##### [730-20-25-14](https://asc.understandingaccounting.org/asc/730/20/#730-20-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:15:14.755Z to 2026-09-10T01:15:14.755Z Record version: sha256:23ab8fc7dae1e55a7760de6a2ee7f8ed5048ae733b63df0e57754c8e7043bfc8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [730-10-55-3](https://asc.understandingaccounting.org/asc/730/10/#730-10-55-3) states that nonrefundable advance payments for future research and development activities for materials, equipment, facilities, and purchased intangible assets that have an alternative future use (in research and development projects or otherwise) shall be recognized in accordance with Subtopic 730-10.