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An acquirer attributes value at acquisition date to 'potential contracts' that the acquiree was negotiating with prospective customers. These are not themselves assets at the acquisition date. The acquirer should:
ARecognise them as separate identifiable intangibles at acquisition
BSubsume their value into goodwill; do NOT later reclassify them out of goodwill even if those negotiations crystallise into contracts after acquisition
CRecognise them in OCI as contingent assets
DCapitalise them as inventory
Answer & Solution
Correct answer: B. Subsume their value into goodwill; do NOT later reclassify them out of goodwill even if those negotiations crystallise into contracts after acquisition
Potential contracts under negotiation are not assets at acquisition. Their value is subsumed into goodwill. Subsequent crystallisation does NOT permit reclassification out of goodwill; however, the acquirer should examine whether a separately identifiable asset actually existed at acquisition date and was missed.
Related questions
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