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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
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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