ACCA FR · Chapter 12 · Question 13 of 13
At the acquisition date, Sable Co (a newly acquired subsidiary) is being sued and has a present obligation arising from a past event. An outflow of resources is not probable, so Sable Co has not recognised a provision, but the obligation's fair value can be measured reliably. How is it treated in the consolidated financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) It is recognised as a liability at fair value, which reduces the net assets acquired and increases goodwill
Explanation
IFRS 3 requires contingent liabilities of the acquiree to be recognised at fair value at the acquisition date if they are present obligations from past events and their fair value can be measured reliably, even if an outflow is not probable. This is an exception to IAS 37. The liability reduces the fair value of identifiable net assets, which increases goodwill.
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