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

Kaveri Textiles Ltd acquired a business and recognised contingent consideration payable in cash, initially at Rs 40 lakh. At the next reporting date its fair value is Rs 46 lakh because the target is expected to hit its earnout. Ind AS 103 applies. How should the Rs 6 lakh change be treated?

The Rs 6 lakh increase is recognised in profit or loss as a loss. 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 liability is carried at Rs 46 lakh.

  1. AAdded to goodwill recognised on acquisition
  2. BRecognised in other comprehensive income
  3. CRecognised in profit or loss as a loss of Rs 6 lakhCorrect
  4. DIgnored, as the liability stays at amortised cost of Rs 40 lakh

Explanation

Under paragraph 4.2.1(e), contingent consideration recognised by an acquirer in a business combination under Ind AS 103 is measured subsequently at fair value, with changes recognised in profit or loss. The increase from Rs 40 lakh to Rs 46 lakh is therefore a Rs 6 lakh loss. Adjusting goodwill would be wrong because this is not a measurement-period adjustment on the facts given.

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