- This topic has 3 replies, 3 voices, and was last updated 7 years ago by
.
- Posts
Hi,
In this question, the information is: At the time of the business combination with Margy, Joey has included in the fair value of Margy’s identifiable net assets, an unrecognised contingent liability of $6 million in respect of a warranty claim in progress against Margy. In March 20X4, there was a revision of the estimate of the liability to $5 million. The amount has met the criteria to be recognised as a provision in current liabilities in the financial statements of Margy and the revision of the estimate is deemed to be a measurement period adjustment. The excess of the fair value of the net assets over their carrying value, at 1 December 20X3, is due to an increase in the value of non-depreciable land and the contingent liability.
My questions is
1. Why dont we add a liability of 5 to the current liability in our consolidation? I think the liability, contingent or provision, is recognized in consolidation and should be included in current liability. The answer adjusted the liability in the post acquisition profit accounts, so that mean there should be another double entry to the current liability as well?
2. How does the final sentence affect the way we do consolidation? I’m not sure what will happen if it only say the excess of FV is due to increase in land only?
3. What is the difference in treatment if the contingent liability does not turn in to provision under IAS 37?
4. What will happen if the recognition under IAS 37 happen after 12 months of measurement period for consolidation? In my opinion, there will be contingent liability to be considered only and that bring the question back to number 3.
Thank you.
Hi,
1. The questions states that the contingent liability has already been included at $6m and then revised to $5m so there is no need to make any further adjustment.
2. Well we know the movement on the liability that we can include in the net assets value so any difference must then be due to the fair value increase on the land. It is very rare that you see the fair value difference being due to two adjustments as it is usually just the one, which is the land and this is then calculated as a balancing figure as seen in the lectures.
3. The treatment is different under IAS 37 to what we do under IFRS 3 and group accounts. If the liability remains contingent then it is shown in the group accounts but is only disclosed within the individual accounts of the subsidiary.
4. If it happens after 12 months then the adjustment is not put through the net assets as part of goodwill but is recognised thought profit or loss.
Thanks
hi dear sir hope you are fine
q 1 = At the time of the business combination with Margy, Joey has included in the fair value of Margy’s identifiable net assets, an unrecognised contingent liability of $6 million in respect of a warranty claim in progress against Margy. In March 20X4, there was a revision of the estimate of the liability to $5 million. The amount has met the criteria to be recognised as a provision in current liabilities in the financial statements of Margy and the revision of the estimate is deemed to be a measurement period adjustment.q 2- On 31 July 2008, Grange acquired a 100% of the equity interests of Fence for a cash consideration of $214 million. The identifiable net assets of Fence had a provisional fair value of $202 million, including any contingent liabilities. At the time of the business combination, Fence had a contingent liability with a fair value
of $30 million. At 30 November 2009, the contingent liability met the recognition criteria of IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ and the revised estimate of this liability was $25 million. The accountant of Fence is yet to account for this revised liability.sir my qestion is on contingent liabilty and why there is diffrence between two adjustment
= in joey question we add revised contingent liability in net asset movement of subsidray and in goodwill we add the diffrence between intially recorded contingent liability and revised contingent liability in the fair valu of identifable net asset at acquesition however in grange question we add reduction in contingent liability when calculating net asset movement of subsidry and in goodwill we dont add any figure in the fair valu of identifable net asset at acquesition thanks in advanceThat is similar to my Q4. As the time the contingent liability crystalised into provision happened after 12 months of acquisition date, the provision is only recognised in subsidiary’s books, thus affecting its net asset at reporting date. For consolidation, the contingent liability still remained in FV of subsidiary net asset for goodwill calculation purpose, without any revision into provision as the crystallization event happened after 12 months of acquisition date.
- You must be logged in to reply to this topic.