At the time of preacquisition legal due diligence of Debonya Limited by the special team, it came to light that Debonya Limited is facing a lawsuit filed by a customer alleging allergical nature of its products with a po

The seller in a business combination may contractually indemnify the acquirer for the outcome of a contingency or uncertainty related to all or part of a specific asset or liability. For example, the seller may indemnify the acquirer against losses above a specified amount on a liability arising from a particular contingency; in other words, the seller will guarantee that the acquirer's liability will not exceed a specified amount. As a result, the acquirer obtains an indemnification asset. The acquirer shall recognise an indemnification asset at the same time that it recognises the indemnified item measured on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts. An indemnification asset represents the acquirer's contractual right to reimbursement from the seller for certain liabilities. It is recognised at fair value, separately from the liability, under Ind-AS 103, and arises only when there is a contractual indemnity, measurable liability, and enforceable right to reimbursement. Alkasa Lifesciences Limited acquires Debonya Limited in a business combination on 1st April, 2025. Debonya Limited is being sued by one of its customers for allergical nature of its products for ₹ 30,00,000. The sellers of Debonya Limited provide an indemnification to Alkasa Lifesciences Limited for the reimbursement of any losses greater than ₹ 12,00,000. At the acquisition date, Alkasa Lifesciences Limited recognises the fair value of the contingent liability of ₹ 30,00,000 in the acquisition accounting. In the acquisition accounting Alkasa Lifesciences Limited should also recognise an indemnification asset of ₹ 18,00,000 (₹ 30,00,000 - ₹ 12,00,000).