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Contigent Liability included in Sub FS on Acquisition

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Contigent Liability included in Sub FS on Acquisition

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by P2-D2.
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  • Author
    Posts
  • February 14, 2018 at 2:43 pm #437209
    stormkgits
    Participant
    • Topics: 6
    • Replies: 7
    • ☆

    Hi Chris,

    Kindly advice on how to incorporate a CL in the Subs books in W2 – NA of Subs on acquisition. Specifically if there’s a FV Adj, does it (CL) reduce the amount of the FV Adj or the FV of NA and subsequently post-acqn profits. Please provide update pro forma for W2 for the above scenario.

    Thanks

    February 17, 2018 at 8:26 am #437714
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Hi,

    If there is a contingent liability in the sub on acquisition then we recognise it at fair value in the group accounts. This is done by reducing the net assets at the acquisition date in (W2). The fair value is then re-assessed at the reporting date and again its fair value is included in (W2) but don’t forget to include it on the face of the group SFP too.

    If there is any movement in the contingent liability’s value then this goes through retained earnings in the post acquisition figure in (W4) and (W5).

    Hope that helps.

    Thanks

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