Sept/Dec 2015 – Bubble Co

Hello Sir.

I’d like to know the adjustment for w2 in consolidation. This is what the part of the question relevant to w2 says:
Bubble acquired 80% of the equity shares of Salt on 1 November 2013 when Salt’s retained earnings were
$56 million and other components of equity were $8 million. The fair value of the net assets of Salt was
$120 million at the date of acquisition. This does not include a contingent liability which was disclosed in Salt’s
financial statements as a possible obligation of $5 million. The fair value of the obligation was assessed as
$1 million at the date of acquisition and remained unsettled as at 31 October 2015. $5 million is still disclosed
as a possible obligation with no change in its fair value. Any remaining difference in the fair value of the net
assets at acquisition relates to non-depreciable land. The fair value of the non-controlling interest at acquisition
was estimated as $25 million. Bubble always adopts the full goodwill method under IFRS 3 Business
Combinations.

So I added together the SC, RE & OCE i.e 50+56+8 = 114.
120-114 =6 which is the FV adj.
My question is regarding the contingent liability . This would be recorded at its fair value of 1 right? As it says in the marking scheme. However, that totals up the NA at acquisition to 119 instead of 120.

Can you please tell me why is that and how is it okay to change the NA and what the required adjusment.

Thank you.