Contingent Liability

At the date of acquisition, when looking at the fair value of Greca’s net assets, Viagem discovers a contingent liability that has (or has not!) been recognised in Greca’s financial statements.

It’s a POSSIBLE liability with less than 50% probability of crystallising (or it has greater than 50% chance, but could not be reliably measured)

On an acquisition, these liabilities have to be measured and included within the “fair value of subsidiary net assets at date of acquisition” and in the Greca case, Viagem has estimated the amount to be $450,000.

That’s the figure that goes into the debit side of the working W2 Goodwill Account and is credited to a (new) liability account in Greca called ‘Contingent Liability’

This has not changed between date of acquisition and date of financial year end, so there it is, in Greca’s records, as a liability and it’s consolidated as such

No affect on the statement of profit or loss

No affect on the statement of comprehensive income

Include $450,000 within a separate heading (probably) within the liability section of the consolidated statement of financial position

If the estimate HAD changed between date of acquisition and date of financial year end, that movement would have been reflected within the statement of profit or loss and the figure on the statement of financial position would reflect the revised estimate of the liability

OK?