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sir hope you doing well,
sir i am really confuse when examiner change the method where there is contingent liability
Q1 dec 09 and q1 dec 2014 adjustment 2 and 3 respectively in both cases contingent liability are decrease but both have different adjustment why? kindly sir review these questions,
my question is in dec9 the contingent liability was 30 at acq time (31 july 2008) but at 30 November 2009 it was 25
the difference is 5 in past paper dec 09 the examiner take this 5 to following
reduce 5 in current liability and 5*100% to Gre
but in dec 14 contingent liability was 6 at 1 December 2013 and at 1 March 2014 was revised at 5 what examiner did ,, the difference is 1 (5-6) he take this 1 and reduce the net assets while calculating the goodwill at acq why? why in both cases the approach is differentHi,
The difference between the two adjustments is that in the Dec’09 exam the change in contingent liability happens in the post acquisition period. So the valuation was correct at the acquisition date but by the reporting date it had changed. So we adjust the post acquisition reserves with no adjustment to goodwill.
In the Dec’14 exam it is phrased slightly differently because the contingent liability was originally measured at $6 million but then changed to $5 million as a ‘measurement period adjustment’. This means that instead of adjusting the value at the reporting date we need to adjust it at the acquisition date as it was originally an estimate that has now been updated to a more accurate fair value. As we’ve adjusted the net assets at acquisition it therefore impacts the goodwill calculation.
Hope this helps.
Thanks
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