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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, estimated at Rs 2,00,000 at the acquisition date. At the next reporting date, its fair value rose to Rs 2,60,000. The contingent consideration is a financial liability within Ind AS 103. How should Kaveri Infra treat the Rs 60,000 increase under Ind AS 109?

The Rs 60,000 increase is recognised in profit or loss. Contingent consideration recognised by an acquirer in a business combination is subsequently measured at fair value, and the changes in that fair value go to profit or loss, not to goodwill, OCI, or an amortised cost carrying amount.

  1. AAdd Rs 60,000 to goodwill
  2. BRecognise Rs 60,000 in profit or lossCorrect
  3. CRecognise Rs 60,000 in other comprehensive income
  4. DIgnore it and carry the liability at amortised cost of Rs 2,00,000

Explanation

Para 4.2.1(e) requires contingent consideration recognised by an acquirer in a business combination to be measured subsequently at fair value, with changes recognised in profit or loss. Adjusting goodwill or using OCI or amortised cost is therefore wrong.

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