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Hi
I’m confused about the contingent liability in bpp revision kit Q45, the December 2014 question.
it saids
the fair value of net assets of subsidiary include a contingent liability $6m.
During the year, the amount is revise to 5m and recognized as a provision and treated as a measurement period adjustment.the retained earning of subsidiary is added by $5m. (why?) I don’t know how this can be presented as an W2 “net assets” like the format in the note.
Please help me
Hi,
If the contingent liability has now been recognised as a liability in the financial statements at the reporting date then the liability will have decreased from $5 million to $nil. The decrease in liability of $5 million is an increase in the post acquisition retained earnings, and hence why it is added back in the answer.
Thanks
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