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Hello dear tutor
I hope that you are well
Contingent liabilities – the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets do not apply to the recognition of contingent liabilities arising in a business combination [IFRS 3.22-23]….
It means that the probability criteria should be ignored in acquisition and it is enough for a contingent liability to be recognised in combination if:
1-its F.V can be measured reliably and 2-there is an obligation…Q)is it correct to we must recognise a liability when it has the above conditions(1&2) but its probability is remote(less than 10%) according to the above note(ie ignoring probability criteria)?
Thank you in advance
Hi,
At least this question is relevant to P2! It has also been seen in previous exams on a few occasions.
All it is saying is that there are separate rules for the recognition of a contingent liability in the group accounts.
If there is a contingent liability in the books of the subsidiary then it is measured at fair value on acquisition and adjusted for any subsequent changes through S’s post acquisition reserves. So yes, effectively we ignore the likelihood of it happening and just record it at its fair value.
Thanks
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