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1. Is it true that contingent consideration is a future liability that depends on the result of some event (or some condition) like a court case etc but the problem is that it is a liability of the subsidiary alone which will eventually reduce the net assets of subsidiary?
2. We will calculate the contingent liability based on computing expected value of probability to see how likely this event is to happen or succeed and based on the chance or likelihood we will record the liability in our financial statements (is that true?)
3. Can you please give me any example to fully comprehend the contingent liability?
4. The journal entry therefore would be:
Contingent expense (debit)
Contingent liability (credit)Contingent expense will be less from Group retained earnings whereas contingent liability will be less from net assets of subsidiary?
Is that all correct. Please explain. Thanks again!
1. No, the contingent consideration is if the subsidiary meets certain targets in the future then more cash will be paid by the parent to the subsidiary shareholders as part of the acquisition.
2. No, it is recorded at fair value.
3. Is there not one in the class notes?
4. No. You are right with the expense but the liability is not one of the subsidiary but of the parent/group.
Thanks
Surely, if it’s only contingent, there is no accounting double entry – or am I wrong? Isn’t it just a note in the financial statements
And wouldn’t contingent consideration be paid to the former shareholders of the now-sold subsidiary and not to the subsidiary itself?
Please correct me that contingent liability and contingent consideration are two separate things!?
Then I request you again to please explain them in detail?
Correct me ask you this:
1) Contingent liability is a future liability that arising from the outcome of future event such as court case etc and it will be dealt in accordance with IAS 37.
2) Contingent liability is a subsidiary liability which will reduce the net assets of subsidiary business.
3) Journal entry would be:
– Net Assets (debit)
– Contingent liability (credit)4) Contingent consideration is when the parent company will pay money to the subsidiary at a future time because the value of the subsidiary business has increased after the acquisition but only if a specific condition has met by the subsidiary.
For eg subsidiary profits has increased by 10% after the acquisition then the parent company will pay the subsidiary the cash in future.
5) Contingent consideration Journal entry would be:
Net Assets (debit)
Contingent consideration (credit)Is that all correct ??
Yes, contingent consideration and contingent liability are two different things. I just took you meaning contingent consideration in your fist post even though you’d written it as contingent liability.
Thanks
So, was my post wrong? Contingent liability, no double entry. Just a note in financial statements?
Contingent consideration, paid to subsidiary’s former shareholders, not to the subsidiary itself?
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