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contingent liability revision in business combination

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › contingent liability revision in business combination

  • This topic has 2 replies, 2 voices, and was last updated 7 years ago by iam6107.
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    Posts
  • November 30, 2017 at 2:34 am #419043
    iam6107
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    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

    November 30, 2017 at 9:22 pm #419258
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7172
    • ☆☆☆☆☆

    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

    December 1, 2017 at 11:13 pm #419538
    iam6107
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    thank you very much?

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