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

Kaveri Infra Ltd. acquired a business and recognised contingent consideration payable to the sellers, linked to future EBITDA targets, under Ind AS 103. At the next reporting date, the estimated fair value of the obligation has risen by ₹12 lakh because the target is now likely to be met. Under Ind AS 109, what is the correct treatment?

Contingent consideration recognised by an acquirer in an Ind AS 103 business combination is subsequently measured at fair value, with changes recognised in profit or loss. So the ₹12 lakh increase in fair value is charged to profit or loss, not goodwill or other comprehensive income.

  1. AMeasure at amortised cost and adjust goodwill by ₹12 lakh
  2. BMeasure at fair value and recognise the ₹12 lakh change in other comprehensive income
  3. CMeasure at fair value and recognise the ₹12 lakh change in profit or lossCorrect
  4. DKeep the liability at the acquisition-date amount until it is settled

Explanation

Paragraph 4.2.1(e) says contingent consideration recognised by an acquirer in a business combination under Ind AS 103 is subsequently measured at fair value, with changes recognised in profit or loss. The increase of ₹12 lakh is therefore an expense in profit or loss. Adjusting goodwill or using OCI is not permitted by the standard text.

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