When performing a purchase price allocation (PPA) for a subsidiary acquisition, you identify an in-process R&D project that has no alternative use. Under IFRS, how is it measured, and what is the subsequent accounting?
An advanced Group Accounting question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
Under IFRS 3, in-process R&D is recognized as an intangible asset at fair value if it meets the identifiability criteria (i.e., arises from contractual/legal rights or is separable). If it has no alternative use, it is measured at fair value as of acquisition date. Subsequently, it is amortized over its useful life once the project is complete, or tested for impairment if not yet available for use. If criteria not met, it is subsumed into goodwill.
WHAT INTERVIEWERS LISTEN FOR
- ✓Recognized at fair value if identifiable
- ✓Amortized after completion or impaired
- ✓Otherwise part of goodwill
COMMON MISTAKES
- ✗Expensing immediately
- ✗Treating as indefinite life
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