Question

An acquirer discovers that a competitor has filed a patent infringement lawsuit against the company it is acquiring. This lawsuit is not currently recognized on the acquiree’s books. How should the acquirer report the lawsuit at the date it makes the acquisition?

a.     Don’t report it until it is settled.

b.    Report it as a liability if it is a probable liability and its value can be reasonably estimated.

c.     Report it as a liability if it is a contractual or separable obligation.

d.    Report it as a liability if it is more likely than not that they will lose the lawsuit.

Answer 1

Solution:

Option (b) i.e Reprt it as a liablity if it is probable and its value can be reasonably estimated.

Explanation:

As per the defination of contingent liablity it means a possible obigation arises from past event which depends on happenening and not happening of future events

As per the IND AS 37 the aqurier should recognise the contingent liability as on the date of the aquisition if it is probable and can be measured reliably on the aquisition date.

From the above disscussion it is clear that option b is correct while the other option does not fulfills the requirement of the IFRS.