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CA Final · Financial Reporting · Classification and Measurement of Financial Assets and Financial Liabilities

Godavari Pharma Ltd acquired a business and recognised contingent consideration payable in cash, initially at fair value of ₹8,00,000. At the reporting date the fair value is ₹9,50,000. Under Ind AS 109 paragraph 4.2.1, how should the change be treated?

The ₹1,50,000 increase in fair value is recognised in profit or loss. Ind AS 109 requires contingent consideration recognised by an acquirer in an Ind AS 103 business combination to be subsequently measured at fair value, with changes taken to profit or loss, not goodwill or OCI.

  1. ARecognise ₹1,50,000 in other comprehensive income
  2. BAdjust goodwill by ₹1,50,000
  3. CRecognise ₹1,50,000 in profit or lossCorrect
  4. DCarry the liability at ₹8,00,000 until settlement under amortised cost

Explanation

Para 4.2.1(e) requires contingent consideration recognised by an acquirer in a business combination under Ind AS 103 to be measured subsequently at fair value with changes in profit or loss. Increase of 9,50,000 - 8,00,000 = 1,50,000 is a loss in P&L. Adjusting goodwill is not permitted for post-acquisition changes under this rule.

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