ImportantAdvanced

Indemnification assets

Learning objectives

Calculate the indemnification asset recognised on the same basis as the indemnified item, subject to a contractual limit given in the case.L3
Record the indemnification asset at the acquisition date as a reduction of goodwill.L3

IFRS 3 §27Indemnification asset: when the seller contractually indemnifies the acquirer for the outcome of a contingency or uncertainty related to all or part of a specific asset or liability, the acquirer recognises an indemnification asset at the same time as the indemnified item and on the same measurement basis, subject to a valuation allowance for uncollectible amounts; if the indemnified item is measured at fair value, so is the asset, and the uncertainty about collectibility is included in that fair value, with no separate allowance.
IFRS 3 §28When the indemnification relates to an item that is an exception to the recognition or measurement principles (for example a contingent liability not recognised because its fair value cannot be measured reliably, or an employee benefit liability), the indemnification asset is recognised and measured using assumptions consistent with those used for the indemnified item, subject to management's assessment of its collectibility and any contractual limitations on the indemnified amount; subsequent accounting is governed by para. 57.
IFRS 3 §57At the end of each subsequent reporting period, the indemnification asset is measured on the same basis as the indemnified item, subject to any contractual limitations on its amount and, if it is not subsequently measured at fair value, to management's assessment of its collectibility; it is derecognised only when it is collected, sold or the right to it is lost.

Original summaries of the paragraphs (reference register), never a quotation of the standard.