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contingent liability grang and joey

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › contingent liability grang and joey

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by P2-D2.
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  • April 27, 2017 at 9:24 pm #384164
    hazratusman
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    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.

    whats the diffrence between these two adjustment thanks in advance

    May 1, 2017 at 7:42 pm #384496
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Hi,

    The difference is that in the second scenario the contingent liability is re-measured more than 12 months after the acquisition and so any change in the value goes through profit or loss and we do not adjust the identifiable net assets as acquisition.

    Thanks

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