In relation to business combinations, it is an asset that an entity recognizes if it contractually indemnifies its customers (purchasers of its products/ services) for a situation of uncertainty such as a contingent liability or an uncertain tax position. Indemnification assets are recognized and measured differently from contingent assets. Such assets arise from Indemnification in whole or in part, depending on the contractual agreement with the customers. An indemnification corresponds to a related contingent liability on the other side of the statement of financial position.
By nature, identifications are part of contractual terms designed to protect an acquirer from any potential adverse effects of an unfavorable future resolution of a situation of uncertainty/ contingent events that may exist at the time of acquisition, with respect to the acquired’s (acquiree’s) past transactions/ dealings with its customers/ obligations toward relevant authorities, etc.
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