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I am referring to the following link.
https://opentuition.com/topic/ias-38-8/– “When assessing fair values for the purposes of acquisition accounting, probabilities concepts go out of the window”.
-In the question it says that “however the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness. If the trials are successful, the value of the drug is then estimated to be $15 million.”
-If we apply the recognition criteria, it can be said that there if no probable inflow of economic benefit for the time being.
Please locate where I am getting things wrong.
Thanks.
What did you understand when I wrote this:
“When assessing fair values for the purposes of acquisition accounting, probabilities concepts go out of the window”
We pay no attention to probabilities of outcomes when it comes to valuing possible assets and liabilities on the occasion of a takeover
“If the trials are successful, the value of the drug is then estimated to be $15 million.”
So account for $15 million as an asset. If it, in fact, is not successful, then that $15 million will be written off against post-acquisition profits but at date of acquisition, even though it’s only a possible asset, we still account for it as an asset as at acquisition
dateOK?
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