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

Kaveri Pharma Ltd acquired a business and recognised contingent consideration payable in cash, depending on future EBITDA of the acquiree, as a liability under Ind AS 103. At the next reporting date the liability's fair value rises from ₹40 lakh to ₹52 lakh because of better-than-expected performance. What is the correct treatment under Ind AS 109?

Kaveri should recognise the ₹12 lakh increase (₹52 lakh less ₹40 lakh) as a loss in profit or loss. Contingent consideration recognised by an acquirer in a business combination is subsequently measured at fair value, with changes recognised in profit or loss, not in goodwill or OCI.

  1. AAdd ₹12 lakh to goodwill as a measurement-period adjustment
  2. BRecognise ₹12 lakh as a loss in profit or lossCorrect
  3. CRecognise ₹12 lakh in other comprehensive income
  4. DContinue to carry the liability at ₹40 lakh at amortised cost

Explanation

Para 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 ₹52 lakh − ₹40 lakh = ₹12 lakh is therefore a loss. Adjusting goodwill is wrong, as the change arises from post-acquisition events.

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