Entity A acquires a pharmaceutical company. A critical factor in the entity”s decision to acquire…

Demonstrating control over the future services of employees

Entity A acquires a pharmaceutical company. A critical factor in the entity"s decision to acquire the company was the reputation of its team of research chemists, who are renowned in their field of expertise. However, in the absence of any other legal rights it would not be possible to show that the entity can control the economic benefits embodied in that team and its skills because any or all of those chemists could leave. Therefore, it is most unlikely that Entity A could recognise an intangible asset in relation to the acquiree"s team of research chemists.

Entity B acquires a football club. A critical factor in the entity"s decision to acquire the club was the reputation of its players, many of whom are regularly selected to play for their country. A footballer cannot play for a club unless he is registered with the relevant football authority. It is customary to see exchange transactions involving players’ registrations. The payment to a player"s previous club in connection with the transfer of the player"s registration enables the acquiring club to negotiate a playing contract with the footballer that covers a number of seasons and prevents other clubs from using that player"s services. In these circumstances Entity B would be able to demonstrate sufficient control to recognise the cost of obtaining the players’ registrations as an intangible asset.

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