# ASC 808-10-55: Collaborative Arrangements — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/808/10/#55-implementation-guidance-and-illustrations) 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): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:ce06717049dd68ba52996f5a35298bb7a52054f0c9d9827ba3a8af4f2e2bc53b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 808-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/808/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Illustrations ##### [808-10-55-1](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:30820299e6d4deda04373aaf75e2d5b0c54c589a6f460edafedb46183228bd5f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section is an integral part of the requirements of this Topic. This Section provides Examples that illustrate potential application of this Topic for [collaborative arrangements](https://asc.understandingaccounting.org/glossary/c/#collaborative-arrangement "A contractual arrangement that involves a joint operating activity (see paragraph 808-10-15-7). These arrangements involve two (or more) parties that meet both of the following requirements: They are active participants in the activity (see paragraphs 808-10-15-8808-10-15-9). They are exposed to significant risks and rewards dependent on the commercial success of the activity (see paragraphs 808-10-15-10808-10-15-11808-10-15-12808-10-15-13).") based on the limited facts presented. The evaluations following each of the Example fact patterns are not intended to represent the only manner in which the guidance in this Topic could be applied. These illustrative Examples do not address all recognition or measurement matters related to collaborative arrangements, for example, the appropriate recognition requirements for a given unit of account, or when the recognition criteria that are met are addressed in other authoritative accounting literature. Additional facts would most likely be required in order to fully evaluate the accounting and presentation issues related to these arrangements (in other words, to evaluate the possible effect of other authoritative accounting literature). ##### [808-10-55-2](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:c58a24e867193b379c36d06835e0c9ed63d91098984ad8249ba9a07074b04dda Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the purpose of the Examples in this Section, assume that all of the arrangements are collaborative arrangements within the scope of this Topic. #### Example 1 : Equal Participation in Results of Research, Development, and Commercialization Arrangement, Participants Perform Different Activities ##### [808-10-55-3](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:4a45e4226643ca068fe95422d04beb10a19bf2ac9c7da8882d0b52dd8ddf90b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in Section 808-10-45. Pharma and Biotech agree to equally participate in the results of research and development activities for a drug candidate and in the commercialization activities if and when the drug candidate is approved for sale, pursuant to a joint development and marketing agreement (a 50 percent, 50 percent arrangement). Biotech is responsible for conducting research and development activities relating to the drug candidate, and Pharma is responsible for the commercialization activities if and when the drug candidate is approved for sale. On a quarterly basis, Pharma and Biotech provide the other party with financial information about the research and development activities performed by Biotech and the commercialization activities performed by Pharma under the joint development and marketing agreement. One participant is required to make a payment to the other participant for the proportionate share of the excess of the entities' combined operating results pursuant to their joint development and marketing agreement. In the first annual period after the product launch, Biotech incurred research and development expenses of $10 million, and Pharma had sales to third parties of $50 million, related manufacturing expenses of $20 million, and marketing expenses of $10 million. Pharma owes Biotech $15 million, such that each participant realizes a $5 million net profit from the arrangement (total sales of $50 million, less total expenses (including research and development) of $40 million, divided by 2). ##### [808-10-55-4](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:9e3ace5d315939c00cee8c3c2be5d1fce213fdf2483fb3a541673d31436fe338 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on an evaluation of the facts and circumstances, Pharma concludes that it is the principal on the sales transactions with third parties and will present 100 percent of the sales, cost of sales, and marketing expenses in its income statement. Pharma has concluded that other authoritative accounting literature does not apply directly to net payments to Biotech, including Topic 606 on [revenue](https://asc.understandingaccounting.org/glossary/r/#revenue "Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.") from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with [customers](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") because Biotech is not a customer. Pharma has concluded that Biotech is not a customer because Biotech has not contracted with Pharma to obtain goods or services that are an output of Pharma's ordinary activities in exchange for consideration. Pharma also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the presentation of amounts due from or owed to other participants associated with multiple activities in a collaborative arrangement based on the nature of each separate activity. As a result, Pharma disaggregates its $15 million net payable to Biotech in accordance with the nature of the individual components of the payable and characterizes the profit sharing portion of the payable for 50 percent of the profit related to the sales as cost of sales ($10 million) and characterizes the portion of the payable to Biotech for research and development activities as research and development expense ($5 million). Pharma presents the following information in its financial statements with respect to this collaborative arrangement (in thousands): - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-38D3516C-08DE-4E3A-B08F-3A7B1EAF43D3-low.gif) Sales to third parties " $50,000 " "Cost of goods sold (including $10,000 payable to Biotech for " " 30,000 " profit sharing) "Selling, general and administrative expense" " 10,000 " "Research and development expense (including $5,000 payable as a" reimbursement of Biotech's expenses incurred) " 5,000 " Net profit " $5,000 " ##### [808-10-55-5](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:bf0f932599a93c5293c918187a123f216dfec767194fc3214e8faa42cb48098c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Biotech records research and development expense ($10 million) for its research and development activities. Biotech has concluded that the research and development services to Pharma represent a distinct service provided to Pharma as a customer. Biotech has concluded that Pharma is a customer because Pharma contracted with Biotech to obtain research and development services that are an output of Biotech's ordinary activities in exchange for consideration. Therefore, Biotech applies the guidance in Topic 606 on revenue from contracts with customers to account for and present its net receivable from Pharma, including profit-sharing payments, as revenue ($15 million) when recognized. Biotech will not present sales, cost of sales, or marketing expenses related to the sales transactions with third parties because it is not the principal on those transactions. - Biotech presents the following information in its financial statements with respect to this collaborative arrangement (in thousands): - - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-1BF0A0F5-F7B0-4D0D-B384-7FCEC6620F88-low.gif) Revenues from collaborative arrangement " $15,000 " Cost of goods sold - "Selling, general and administrative expense" - Research and development expense " 10,000 " Net profit " $5,000 " ##### [808-10-55-6](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:40269bcf5f3cf61f48e2b5c1a61e46735be378d9c96f042186709a569ff7505a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This evaluation is not intended to illustrate the appropriate revenue recognition requirements for any of the transactions described in this Example or the appropriateness of the conclusions reached on determining whether and how authoritative accounting literature applies directly or by analogy. Rather, those conclusions have been assumed as facts in this Example. #### Example 2 : Equal Participation in Results of Research, Development, and Commercialization Arrangement, Participants Perform Some of the Same Activities ##### [808-10-55-7](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:27220f359c5aa1b56128277093afe1b7eed1a9062bc65059aeba18ee2486c0ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in Section 808-10-45. Pharma and Biotech agree to equally participate in the results of research and development activities for a drug candidate and in the commercialization activities if the drug candidate is approved for sale, pursuant to a joint development and marketing agreement (a 50 percent, 50 percent arrangement). Assume that Pharma and Biotech both agree to provide resources during the research and development phase, and Pharma is responsible for the commercialization activities if the drug candidate is approved for sale. As both participants are performing research and development activities, there may be periods in which Biotech must make a payment to Pharma for its proportionate share of the research and development activities and periods in which Pharma must make payments to Biotech. On a quarterly basis, Pharma and Biotech provide financial information about the research and development activities performed by both parties and the commercialization activities performed by Pharma under the joint development and marketing agreement. One participant is required to make a payment to the other participant for a proportionate share of the excess of the parties' combined operating results pursuant to their joint development and marketing agreement. In the first annual period after the product launch, Biotech and Pharma incurred research and development expenses of $10 million and $15 million, respectively. Pharma had sales to third parties of $75 million, related manufacturing expenses of $22.5 million, and marketing expenses of $20 million. As a result, Pharma owes Biotech $13.75 million, such that each participant realizes $3.75 million net profit from the arrangement (total sales of $75 million, less total expenses of $67.5 million, divided by 2). ##### [808-10-55-8](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:38567fe047b2e24f8edd16c342a696c05215b4feca096123e00ec5dc5f1b2590 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on an evaluation of the facts and circumstances, Pharma concludes that it is the principal on the sales transactions with third parties and will present 100 percent of the sales, cost of sales, and marketing expenses in its income statement. Pharma has concluded that other authoritative accounting literature does not apply directly to net payments to Biotech, including Topic 606 because Biotech is not a customer. Pharma has concluded that Biotech is not a customer because Biotech has not contracted with Pharma to obtain goods or services that are an output of Pharma's ordinary activities in exchange for consideration. Pharma also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the presentation of amounts due from or owed to other participants associated with multiple activities in a collaborative arrangement based on the nature of each separate activity. As a result, Pharma disaggregates the $13.75 million net payable to Biotech in accordance with the nature of the individual components of the payable and characterizes the portion of the payable related to 50 percent of the commercialization activities (sales to third parties less associated manufacturing and marketing costs) as cost of sales ($16.25 million). Pharma characterizes the portion of the net payable related to research and development activities as a reduction of its research and development expenses ($2.5 million), because performing contract research and development services is not part of its ordinary activities. Pharma presents the following information in its financial statements with respect to this collaborative arrangement (in thousands): - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-A5BB5732-EBEF-4A81-8846-B750CC683FE9-low.gif) Sales to third parties " $75,000 " "Cost of goods sold (including $16,250 payable to Biotech for " " 38,750 " profit sharing) "Selling, general and administrative expense" " 20,000 " "Research and development expense (including $2,500 payable as a" reimbursement of Biotech's expenses incurred) " 12,500 " Net profit " $3,750 " ##### [808-10-55-9](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:f789e3342157499b6283e10d6277709d9eeba66993d1d392b8d9390a74c62205 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Biotech records research and development expense ($10 million) for its research and development activities. Biotech will characterize the portion of the net receivable from Pharma related to Pharma's sales to third parties ($16.25 million) as revenue. Biotech also considers performing research and development services to be part of its ordinary activities and is providing the output of those activities to Pharma as a customer in the context of the unit of account related to research and development services. Biotech analyzes its specific facts and circumstances under the guidance on consideration payable to a customer in paragraphs [606-10-32-25 through 32-27](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-25) and determines that the portion of the net receivable that relates to a reimbursement of Pharma's research and development costs ($2.5 million) should be characterized as a reduction of revenue. Biotech will not present sales, cost of sales, or marketing expenses related to the sales transactions with third parties because it is not the principal on those transactions. Biotech presents the following information in its financial statements with respect to this collaborative arrangement (in thousands): - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-B398E2B6-9B13-45B1-B476-9AB10EEEDC2E-low.gif) Revenues from collaborative arrangement " $13,750 " Cost of goods sold - "Selling, general and administrative expense" - Research and development expense " 10,000 " Net profit " $3,750 " ##### [808-10-55-10](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:fbb72cff7add3da3e809ad7a7e9b10470293f6e2d9bb3c3d4d25657fc5aa2c7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This evaluation is not intended to illustrate the appropriate revenue recognition requirements for any of the transactions described in this Example or the appropriateness of the conclusions reached on determining whether and how authoritative accounting literature applies directly or by analogy. Rather, those conclusions have been assumed as facts in this Example. #### Example 3 : Unequal Participation in Results of Research, Development, and Commercialization Arrangement, Participants Perform Some of the Same Activities ##### [808-10-55-11](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:84bc5851c83f44d59c33725f46bd71afcbfe1489e4b837cf7aec21475abc0825 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in Section 808-10-45. Big Pharma and Little Pharma agree to jointly participate in the results of the research and development activities for a drug candidate and in the commercialization activities if and when the drug candidate is approved for sale, pursuant to a joint development and marketing agreement. Big Pharma and Little Pharma both agree to provide resources during the research and development and the commercialization activities. Little Pharma will be responsible for commercialization activities in the United States, and Big Pharma will be responsible for commercialization activities in Europe and Asia. Under the arrangement, they will share research and development costs incurred on a 50 percent, 50 percent basis. Little Pharma will retain 65 percent of the net profits from commercialization activities in the United States, and Big Pharma will retain 70 percent of the net profits from commercialization activities in Europe and Asia. On a quarterly basis, Big Pharma and Little Pharma provide financial information about the research and development and the commercialization activities performed by both parties under the joint development and marketing agreement, and one participant is required to make a payment to the other participant for a proportionate share of the excess of the parties' combined operating results pursuant to their joint development and marketing agreement. The results of the first annual period of the collaborative arrangement prior to any payments between the parties were as follows (in thousands): - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-5BAB7412-A9C3-4681-A04F-305AE6E79AFC-low.gif) Little Big Pharma Pharma Combined Sales to third parties " $120,000 " " $90,000 " " $210,000 " Cost of goods sold " 30,000 " " 35,000 " " 65,000 " "Selling, general and administrative expense" " 25,000 " " 20,000 " " 45,000 " Research and development expense " 35,000 " " 20,000 " " 55,000 " Net profit " $30,000 " " $15,000 " " $45,000 " ##### [808-10-55-12](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:0ccd51ddefa5fdaf7818d26d09aa72f7f7e0e074862434c1e0513c7c6ad5eeb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on an evaluation of the facts and circumstances, Big Pharma concludes that it is the principal on the sales transactions with third parties in Europe and Asia and will present 100 percent of the sales, cost of sales, and marketing expenses related to those efforts in its income statement. Big Pharma has concluded that other authoritative accounting literature does not apply directly to net payments to Little Pharma, including Topic 606 because Little Pharma is not a customer. Big Pharma has concluded that Little Pharma is not a customer because Little Pharma has not contracted with Big Pharma to obtain goods or services that are an output of Big Pharma's ordinary activities in exchange for consideration. Big Pharma also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the presentation of amounts associated with each separate activity. As a result, Big Pharma disaggregates its $4.75 million net receivable from Little Pharma in accordance with the nature of the individual components of the payable and characterizes the portion of the net receivable related to 30 percent of the profit related to the sales in Europe and Asia as expenses from collaborative arrangement ($10.5 million) and the portion of the net receivable related to a reimbursement of Little Pharma's research and development costs as research and development expenses ($7.5 million). Big Pharma concludes that the portion of the net receivable directly related to Little Pharma's third-party sales in the United States is analogous to a royalty and therefore characterizes the $22.75 million as revenue similar to a royalty. Big Pharma also concludes that any payment from Little Pharma for research and development activities would be characterized as a reduction of its research and development costs because performing contract research and development services is not part of its ordinary activities. Big Pharma presents the following information in its financial statements with respect to this collaborative arrangement (in thousands): - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-52E42073-2E47-4C37-A51C-939F5F9F64AA-low.gif) Sales to third parties " $90,000 " Revenues from collaborative arrangement " $22,750 " Cost of goods sold " 35,000 " Expenses from collaborative arrangement " 10,500 " "Selling, general and administrative expense" " 20,000 " "Research and development expense (including $7,500 payable as a" reimbursement of Little Pharma's expenses incurred) " 27,500 " Net profit " $19,750 " ##### [808-10-55-13](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:1fa1a5a0521dfd60d402cdbe2b9e15fc538d2f58444551b8cf39b85124deb6cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Little Pharma concludes that it is the principal on the sales transactions with third parties in the United States and will present 100 percent of the sales, cost of sales, and marketing expenses related to those efforts in its income statement. Little Pharma has concluded that other authoritative accounting literature does not apply directly to net payments to Big Pharma, including Topic 606 because Big Pharma is not a customer. Little Pharma has concluded that Big Pharma is not a customer because Big Pharma has not contracted with Little Pharma to obtain goods or services that are an output of Little Pharma's ordinary activities in exchange for consideration. Little Pharma also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the presentation of payments associated with each separate activity. As a result, Little Pharma disaggregates its $4.75 million net payable to Big Pharma in accordance with the nature of the individual item and characterizes a portion of the net payable related to 35 percent of the profit related to the sales in the United States as expenses from collaborative arrangement ($22.75 million) and characterizes the portion of the net payable to Big Pharma for research and development activities as research and development expenses. Little Pharma concludes that the portion of the net payable directly related to profit sharing from Big Pharma's third-party sales in Europe and Asia is analogous to a royalty and therefore should characterize the $10.5 million as revenue similar to a royalty. Little Pharma also concludes that any payment from Big Pharma for research and development activities will be characterized as a reduction of its research and development costs ($7.5 million) because performing contract research and development services is not part of its ordinary activities. Little Pharma presents the following information in its financial statements with respect to this collaborative arrangement (in thousands): - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-9F9528EB-E479-41C4-A3C7-338A9D548936-low.gif) Sales to third parties " $120,000 " Revenue from collaborative arrangement " $10,500 " Cost of goods sold " 30,000 " Expenses from collaborative arrangement " 22,750 " "Selling, general and administrative expense" " 25,000 " "Research and development expense (including $7,500 due from" Big Pharma as a reimbursement) " 27,500 " Net profit " $25,250 " ##### [808-10-55-14](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:bae49654bdf61bf34b6253359009c6e87119b5590c768456ad2e756744c46f04 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This evaluation is not intended to illustrate the appropriate revenue recognition requirements for any of the transactions described in this Example or the appropriateness of the conclusions reached on determining whether and how authoritative accounting literature applies directly or by analogy. Rather, those conclusions have been assumed as facts in this Example. #### Example 4 : Equal Participation in Results of Production and Distribution of Major Motion Picture, Participants Perform Some of the Same Activities ##### [808-10-55-15](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:32d91f3a6da455880e6b9ded9e600b03f0f75e66d3badf643805c29e885538f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in Section 808-10-45. Studio A and Studio B agree to jointly participate in the production and distribution of a major motion picture. Studio A will manage the day-to-day production activities and will be responsible for distribution in the United States. Studio B will be responsible for distribution in Europe and Asia. Even though Studio A will be managing the production, the terms of the arrangement state that both studios will share equally in all production costs incurred. Further, Studio A will pay 50 percent of the net profits (that is, revenues less distribution costs) from the United States distribution to Studio B, and Studio B will pay 50 percent of the net profits from European and Asian distribution to Studio A. The studios are responsible for initially funding all distribution costs in their respective locations. For purposes of this example, no license to intellectual property has been conveyed to Studio B. ##### [808-10-55-16](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:eaf5a39d22b3a435968a51fe571714509167ce8f92b1255d1609a99fb85df956 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that Studio A and Studio B have the same estimates of ultimate revenue and ultimate participation costs. Both studios estimate that Studio A will owe Studio B net ultimate participation costs of $45 million. Based on the individual-film-forecast-computation method in accordance with Section 926-20-35, Studio A's current period participation cost expense (and Studio B's current period participation income) is $7 million in Year 1 following the film's initial release. ##### [808-10-55-17](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:71495d21642d88cf4c443d07f4b61d6c8b7140595b911a039964a83c0996e353 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on an evaluation of the facts and circumstances, during (or at the completion of) production, Studio A records a receivable from Studio B for production costs and a corresponding reduction of its capitalized film costs. Studio A has determined that, considering the guidance on principal versus agent considerations in paragraphs [606-10-55-36 through 55-40](https://asc.understandingaccounting.org/asc/606/10/#606-10-55-36) , it is the principal for the revenue generated in the United States. Accordingly, it characterizes all of the gross revenue generated in the United States as revenue in its income statement and likewise records all of the associated distribution costs for distribution in the United States. Studio A concludes that Topic 606 does not apply to net participation costs owed to Studio B because Studio B is not a customer. Studio A also concludes that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, Studio A's accounting policy with respect to participation costs due from and to its production partners is to record net amounts due from production partners for profit shares on sales to third parties as additional revenue and net amounts due to production partners for profit shares on sales to third parties as a cost of sales. Accordingly, Studio A characterizes its Year 1 participation cost expense of $7 million as cost of sales. ##### [808-10-55-18](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:dbf7bd66ee229ff8fc512c6a5097b664c40305ee88b8d5bb73d4c1b45cc02051 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During production, Studio B records amounts payable to Studio A for production costs and a corresponding amount as capitalized film costs. Studio B has determined that, after considering the guidance on principal versus agent considerations in paragraphs [606-10-55-36 through 55-40](https://asc.understandingaccounting.org/asc/606/10/#606-10-55-36) , it is the principal for the revenue generated in Europe and Asia. Accordingly, it characterizes all of the gross revenue generated in Europe and Asia as revenue in its income statement and likewise records all of the associated distribution costs for distribution in Europe and Asia. Studio B concludes that other authoritative accounting literature does not apply directly, including Topic 606 because Studio A is not a customer, regarding the presentation of net ultimate participation costs due from Studio A. Studio B has concluded that Studio A is not a customer because Studio A has not contracted with Studio B to obtain goods or services that are an output of Studio B's ordinary activities in exchange for consideration. Studio B also concludes that other authoritative accounting literature does not apply by analogy, and, accordingly, Studio B's accounting policy for profit sharing amounts due from and to its production partners is to record those amounts on a net basis in cost of sales. It views those amounts either as additional costs for production and distribution or as a reimbursement of such costs. Accordingly, Studio B characterizes its Year 1 participation cost income of $7 million as a reduction of cost of sales. ##### [808-10-55-19](https://asc.understandingaccounting.org/asc/808/10/#808-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:33.926Z to 2026-09-10T01:28:33.926Z Record version: sha256:b4ba6ddfb588da67066f7431c56f2a4d57e54ddcc15aa822faca90710fa5f34c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This evaluation is not intended to illustrate the appropriate revenue recognition requirements for any of the transactions described in this Example or the appropriateness of the conclusions reached on determining whether and how authoritative accounting literature applies directly or by analogy. Rather, those conclusions have been assumed as facts in this Example.