Hi, Does anyone know what “indemnification assets” are? the CFA text talks about it in the FSA book page 38, last section.
I have not read the text as yet, but indemnification typically means to hold harmless. For example, if I indemnify the manufacturer of a toy truck, I will idemnify or hold the manufacturer harmless in the event that my kid swallows the toy and dies.
my understanding is if you buy a big chunk of a company, and they contractually idemnify you rom seomthing (for example legal action against a certain product) then that contract is an indemniication asset and obviously has some value
I understand this as a contract. How is it used as an asset? Any ideas?
if the contract saves you from a loss given a certain event then it has value, eg a very basic valuation: an event might occur with 40% probability, if it happens then you lose 1mill. the value of the idemnification asset would be 400k (.4*1m)
ok thanks
kurupt1 Wrote: ------------------------------------------------------- > if the contract saves you from a loss given a > certain event then it has value, eg a very basic > valuation: > > an event might occur with 40% probability, if it > happens then you lose 1mill. the value of the > idemnification asset would be 400k (.4*1m) I thought that this meant that the full asset would be recorded on the balance sheet… ie. Company A buys an asset from company B that comes with some sort of legal issue, if the issue turns out to have a negative effect (say a drop in the valuation of the asset) Company B would take care of the issue themselves, Therefore Company A would report the asset at full value on their balnce sheet since the resulting negative issue would not affect them. correct?
cant remember how its recorded, i was just giving an example of how the contract would have value.
The acquirer must recognize an indemnification asset if the acquiree contractually indemnifies the acquirer for the outcome of a contingency or uncertainty related to all or part of a specific asset or liability.