# ASC 810-30-25: Consolidation — Research and Development Arrangements — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/810/30/#25-recognition)

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## ASC 810-30-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/810/30/#25-recognition)

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##### [810-30-25-1](https://asc.understandingaccounting.org/asc/810/30/#810-30-25-1)

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This guidance addresses transactions in which a [sponsor](https://asc.understandingaccounting.org/glossary/s/#sponsor "An entity that capitalizes a research and development arrangement.") capitalizes a new entity with cash and rights to certain technology developed by the sponsor, in exchange for Class A and Class B common stock in the new entity. The Class B common shares convey essentially no financial interest to the Sponsor and, other than certain blocking rights, provide the sponsor essentially no voting rights. The sponsor subsequently distributes the Class A common stock to its shareholders subject to a purchase option held by the sponsor. The sponsor then receives funds from the new entity to perform research and development activities. Other potential structures designed to achieve similar objectives also exist. For other types of research and development arrangements, see Subtopic 730-20.

##### [810-30-25-2](https://asc.understandingaccounting.org/asc/810/30/#810-30-25-2)

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While a consolidation approach to the sponsor's accounting is not specified, if the incurred research and development costs were allocated to the new entity's Class B common stock held by the sponsor (because the value of the new entity's Class A common stock is derived from the sponsor's purchase option on those shares, not from the sponsor's initial funding of the new entity), the accounting that would result from consolidation would be essentially the same as that required by this Subtopic.

##### [810-30-25-3](https://asc.understandingaccounting.org/asc/810/30/#810-30-25-3)

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The sponsor of a research and development arrangement shall account for the research and development arrangement as follows:

1.  a
    
    Reclassify the cash contributed to the new entity as restricted cash at the time of distribution of the new entity's Class A common stock.
    
2.  b
    
    Recognize research and development expense as the research and development activities are performed.
    
3.  c
    
    Account for the distribution of the new entity's Class A common stock as a dividend to common stockholders of the sponsor.