CERTYNEX IFRS ACADEMY

In a business combination, the acquiree is the defendant in a lawsuit. At the acquisition date, it is a present obligation arising from past events whose fair value can be measured reliably; an outflow of resources is, however, not probable. What treatment does the acquirer apply?

It recognises nothing, because an outflow of resources is not probable, as the standard on provisions provides for existing liabilities towards third parties.

It recognises the liability when an outflow of resources becomes probable before the end of the measurement period of the combination.

It discloses the lawsuit in the notes without recognising it, the fair value being surrounded by too much uncertainty to be used.

It recognises a contingent liability assumed at its fair value: the probability of an outflow is not required, the uncertainty being reflected in the fair value.