contingent liability revision in business combination

Iiam61078y ago

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

P2-D2Tutor8y ago#1

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

Iiam61078y ago#2

thank you very much?

Sign into reply to this topic.