Company: IXHL
Filing Date: 2025-09-29
Form Type: 10-K
Source: 0001213900-25-092837
Chunk: 776

Company: Incannex Healthcare Inc.
Filing Date: 2025-09-29
Form: 10-K
Item: Item 6
Chunk 776
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 $3.8
million.

89

Critical Accounting Estimates

Our financial statements
are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements
and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and
expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience,
known trends and events, and various other factors we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate
our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or
conditions.

While our significant
accounting policies are described in more detail in Note 2 to our financial statements included elsewhere in this Annual Report, we believe
the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Acquisitions

We evaluate acquisitions under the accounting
framework in ASC 805, Business Combinations, to determine whether the transaction is a business combination or an asset acquisition.
In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, we first perform a screen
test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset
or a group of similar identifiable assets. If this is the case, the acquired set is not deemed to be a business and is instead accounted
for as an asset acquisition. If this is not the case, we further evaluate whether the acquired set includes, at a minimum, an input and
a substantive process that together significantly contribute to the ability to create outputs. If so, we conclude that the acquired set
is a business.

We measure and recognizes asset acquisitions that
are not deemed to be business combinations based on the cost to acquire the assets, which includes pre-acquisition direct costs recorded
in accrued professional and consulting fees. Goodwill is not recognized in asset acquisitions.

Stock-Based Compensation

We account for stock-based compensation arrangements
with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to
all stock-based payments including share options. The fair value method requires us to estimate the fair value of stock-based payment
awards on the date of grant using an option-pricing model. We use either the trinomial pricing or Black-Scholes option