Contingent liability in a business combination
For a contingent liability within the relevant IFRS 3 requirements, the acquirer recognises at the acquisition date a present obligation arising from past events if its fair value can be measured reliably, even if an outflow is not probable. Special requirements and exceptions apply to items in the scope of IAS 37 or IFRIC 21. Subsequent measurement follows IFRS 3 and related standards. This differs from ordinary IAS 37 provision recognition, which requires a probable outflow.
Worked example
At acquisition, a target has a present obligation from a lawsuit with a reliably measurable fair value of $30,000. If the applicable IFRS 3 conditions are met, the acquirer recognises the $30,000 liability even though an outflow is not probable.
Common mistake
Applying the ordinary IAS 37 probability threshold unchanged at acquisition or recognising a mere possible obligation without assessing the IFRS 3 criteria.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |