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.
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IFRS 3 requires that in a business combination contingent liabilities, which were hitherto disclosed but not recognised by the aquiree as per IAS 37, must now be recognised by the acquirer. Why is this the case? Is it in order to keep with the prudence concept (since contingent assets are still not recognised)?
Hi,
The amount we are paying to acquire the subsidiary will reflect the fact that there is a contingent liability in the subsidiary, i.e. we are paying a lower amount. We therefore should reflect the reason we are paying less by recording the liability at fair value.
Thanks
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Thanks P2-D2. Why then are contingent assets not also recognised?
Although the contingent asset is not recognised in the group accounts, we are likely to pay more to acquire the subsidiary given the information in the notes of the subsidiary and so there will effectively be an asset recognised in the higher value of goodwill.
Thanks
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Thanks P2-D2.
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