I - Goodwill (and Business Combination): General principles

4. Subsequent measurement and accounting

4.1. Scope

(IFRS 3, par 54)

In general, an acquirer shall subsequently measure and account for assets acquired, liabilities assumed or incurred and equity instruments issued in a business combination in accordance with other applicable IFRSs for those items, depending on their nature.

However, some information should be provided on the measurement and subsequent accounting for the following assets acquired, liabilities assumed or incurred and equity instruments issued in a business combination:

• Reacquired rights;
• Contingent liabilities recognised as of the acquisition date;
• Indemnification assets; and
• Contingent considerations.

4.2. Reacquired rights

(IFRS 3, par 55)

A reacquired right recognised as an intangible asset shall be amortised over the remaining contractual period of the contract in which the right was granted. An acquirer that subsequently sells a reacquired right to a third party shall include the carrying amount of the intangible asset in determining the gain or loss on the sale.

4.3. Contingent liabilities recognized as of the acquisition date

(IFRS 3, par 56)

After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall measure a contingent liability recognised in a business combination at the higher of:

1. 1. the amount that would be recognised in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets"; and
   2. the amount initially recognised less, if appropriate, cumulative amortisation recognised in accordance with IAS 18 "Revenue".

This requirement does not apply to contracts accounted for in accordance with IAS 39 "Financial Instruments: Recognition and Measurement" (superseded by IFRS 9 "Financial Instruments")

4.4. Indemnification assets

(IFRS 3, par 57)

At the end of each subsequent reporting period, the acquirer shall measure an indemnification asset that was recognised at the acquisition date on the same basis as the indemnified liability or asset, subject to any contractual limitations on its amount and, for an indemnification asset that is not subsequently measured at its fair value, management’s assessment of the collectibility of the indemnification asset. The acquirer shall derecognise the indemnification asset only when it collects the asset, sells it or otherwise loses the right to it.

4.5. Contingent considerations

(IFRS 3, par 58)

IFRS 3 (revised 2008) requires the consideration for the acquisition to be measured at fair value at the acquisition date. This includes the fair value of any contingent consideration payable.

Changes resulting from events after the acquisition date  are recognized in P/L and not any longer considered as an adjustment to the acquisition cost (i.e.: goodwill is increased without impact on the income statement).

 such as the acquiree:

• meeting an earnings target,
• reaching a specified share price, or
• meeting a milestone on a research and development project