Hi all,
I need some help with how to account for future milestones receipts due to the sale of an equity investment. We have sold our interest in an equity investment (effectuated in 2022) to a third party, which was valued at fair value through profit or loss. Next to our initial investment, we will receive milestone proceeds in based on future development.
How do I account for these future milestones as at 31/12/2022? Are these contingent assets?
Milestones on sale equity investments
Re: Milestones on sale equity investments
via PwC... "Under IFRS, a contract to receive contingent consideration that gives the seller the right to receive cash or other financial assets when the contingency is resolved meets the definition of a financial asset. When a contract for contingent consideration meets the definition of a financial asset, it is measured in accordance with IFRS 9, typically at fair value through profit or loss."
Re: Milestones on sale equity investments
No, they are contractual financial assets.
This assets most likely fails the SPPI test so it must be carried at FVTPL:
https://ifrscommunity.com/knowledge-bas ... abilities/
Re: Milestones on sale equity investments
Thank you guys!
How are contract assets measured at initial recognition? Are they discounted or is it against nominal value of the future milestones to be received?
How are contract assets measured at initial recognition? Are they discounted or is it against nominal value of the future milestones to be received?
Re: Milestones on sale equity investments
A 'contract asset' is something different, but by definition FVTPL is at fair value (ie present value of future cash flows) taking into account all the necessary judgements in terms of milestones. Milestones sounds like contingent on future events so you'll have to assess the likelihood at reporting dates.
Re: Milestones on sale equity investments
Sorry, contract asset wasn't the right term indeed.
Thanks JRSB, this was very helpful!
Thanks JRSB, this was very helpful!