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It’s stated in my textbook that any contingent liabilities in the subsidiary need to be recognised as liabilities in the consolidated financial statements if a fair value is assigned to them.
Therefore for December 2012 exam , question on Viagem, transaction (i) regarding the contingent liability with a fair value of $450 000.
This should be recognised within the consolidated financial statements, since a fair value is assigned.
Therefore the adjustments would be
SOFP : – 450 000 from fair value of net assets table
And a contingent liability of 450 000 will be recognised under current liabilities in the SOFP
Am i right sir ?
“Therefore the adjustments would be
SOFP : – 450 000 from fair value of net assets table
And a contingent liability of 450 000 will be recognised under current liabilities in the SOFP
Am i right sir ?”
You are absolutely correct, yes
It’s an unusual situation with contingencies when it comes to fair values at date of acquisition because, even though they may be only contingent with less that 50% probability, they must be included within the calculation of “fair value of subsidiary net assets at date of acquisition”
IFRS 3 says so and, if IFRS 3 says so, that’s what we must do!
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