An acquirer discovers that a competitor has filed a patent infringement lawsuit against the company it is acquiring. This lawsuit is not currently recognized on the acquiree's books. How should the acquirer report the lawsuit at the date it makes the acquisition?

Question

Quizplus · Accepted Answer

The correct approach is to report it as a liability if it is a probable liability and its value can be reasonably estimated. This is in line with accounting principles that require recognition of liabilities when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation and the amount can be estimated reliably.

An Acquirer Discovers That a Competitor Has Filed a Patent