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Dear sir, suppose I acquire a subsidiary 100% and cost of acquisition contains cash payment along with deffered cash payment, I propose another payment which can only be paid when profits of the subsidiary meets profits forecasted at date of acquisition, the fair value is say 5 million of this payment, can I recognise this payment at cost of acquisition even though its a performance condition or did I expense because its post acquisition requirement?
Hi
Not only can you …… you must. This contingent consideration is an exception to the general provision and contingency rules. IFRS3 tells us that contingent consideration shall be included as part of the cost of acquisition as though the probability of the obligation crystallising were 100%
Ok?
That means we can identify this consideration on a condition that it can be reliably measured?
revised IFRS 3 says that by entering into acuqisition , the acuirer become obliged to make additional payments.Not reconising that obligation means that the the consderation recognised at acuisition is not fairly satated.
so rEVISED ifrs 3 requires recognition of contingent consideration at FV at acuisition date and any changes to FV wil be subsequently taken to PnL( It was the original IFRS 3 that required the recognition of contingent consideration if it was probabale and the amount can be measured reliably)
How can you reliably measure a contingency? Particularly a contingency that varies according to the level of some future uncertainty
I’m not sure why Aishaasad makes such an emphasis on IFRS 3 REVISED – whichever version of whichever IFRS issued within whichever year is a complete irrelevancy for the exam – there are no marks for churning out such details
Ok?
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