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Dear sir, the examiner answer stated that the ias 37 probability criterion does not apply under ifrs 3 . A contingent is recognise whether or not it is probable that an outflow of economy will take place. The contingent liability need to recognise as a part of business combination. What is the probability criterion? contingent liability if were to recognise , it will become a provision not contingent liability isn’t it? Can u help me to rephrase the sentence and explain further?
No, the point is that we do not consider whether the outcome of the unpredictable is remote, possible, probable or even virtually certain. If there is an element of purchase consideration payable in the future dependent upon the outcome of some substantially uncertain future event, then we assume that that event will occur and thus we include the present value of that future payment. there was a recent exam question that identified such a payment dependent upon the company being profitable within the next 2 (?) years and the exam question stated that it was most unlikely that this would happen.
Nevertheless, the contingent consideration present value had to be included within the calculation of goodwill
OK?
Ok, I’ll put it simpler! Normally, when considering the treatment of a future uncertainly (provide or disclose as contingent) we consider the probability of the event occurring.
In the situation of a takeover involving contingent consideration payable upon the outcome of some future uncertain event, we do NOT bring into our calculations the probability of the future event occurring.
(There is on-going discussion about this – to be consistent, maybe we SHOULD apply probability weighting!)
Better?
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