June 2015 Question 1b

Hi, It is a bit confusing but all it does is discuss the definition of a liability and equity in the first paragraph. Remember the key to a liability is the obligation to pay cash and equity is the residual interest in the net assets of the entity. The contingent payments are not part of IAS 37 but dealt with as part of IFRS 3, where even then there isn't a huge amount of guidance. We do have an obligation to pay cash in the contract and so the liability is recognised, which like most things under IFRS would be at fair value. Hope this clears it up slightly. Thanks